Factors that reflect the ability of a business to pay its debts and earn a reasonable amount of income are referred to as solvency, profitability, and liquidity.

Question

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Solvency reflects the ability of a business to pay its long-term debts, profitability reflects the ability to earn income, and liquidity reflects the ability to meet short-term obligations. These factors are all important for the overall financial health of a business.

Factors That Reflect the Ability of a Business to Pay