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Question
Long term solvency is indicated by .
Long term solvency is indicated by .
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Solution
The correct option is C Debt equity ratio
Debt equity ratio measures the debt funds funds with respect to the equity. A high ratio means less security to the creditors, because a high ratio would indicate that the debt funds are more than the equity funds and while paying off the liabilities less funds would be available to pay off the creditors and hence the solvency would be low and vice versa. Therefore we can say that long term solvency is indicate by Debt equity ratio.
Debt equity ratio measures the debt funds funds with respect to the equity. A high ratio means less security to the creditors, because a high ratio would indicate that the debt funds are more than the equity funds and while paying off the liabilities less funds would be available to pay off the creditors and hence the solvency would be low and vice versa. Therefore we can say that long term solvency is indicate by Debt equity ratio.
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