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    Question

    Long-term solvency is indicated by

    :
    A Debt/equity ratio Correct Answer Incorrect Answer
    B Current Ratio Correct Answer Incorrect Answer
    C Operating ratio Correct Answer Incorrect Answer
    D Net profit ratio Correct Answer Incorrect Answer
    E Quick Ratio Correct Answer Incorrect Answer

    Solution

    Long-term solvency refers to a company's ability to meet its long-term obligations as they become due. It is an important aspect of financial health, as it determines a company's ability to sustain itself in the long run. The debt-to-equity (D/E) ratio is a financial ratio that measures a company's long-term solvency. It is calculated by dividing a company's total liabilities by its total equity. The higher the D/E ratio, the higher the company's financial leverage, which can increase its risk of default if it is unable to generate sufficient earnings to meet its debt obligations. A lower D/E ratio indicates a company with a lower level of debt relative to its equity, which generally means that the company is less risky and more capable of meeting its long-term obligations.

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