Which of the following ratios provides a solvency measure that shows the margin of safety of noteholders or bondholders and also gives an indication of the potential ability of the business to borrow additional funds on a long-term basis?

Question

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The ratio of fixed assets to long-term liabilities (also called the "debt to equity ratio") provides a solvency measure by indicating the amount of assets that are available to cover long-term debt. A higher ratio indicates a stronger solvency position and potentially greater ability to borrow additional funds on a long-term basis. Option B is incorrect because it measures asset efficiency, not solvency. Option C measures the efficiency of the collection of receivables, but does not provide information on solvency. Option D measures the profitability of equity investment but does not provide information on the margin of safety for bondholders or the potential ability to borrow additional funds.

Which of the Following Ratios Provides a Solvency Measure That