Which ratio evaluates the capability of a business to meet its long-term financial obligations?

[0.88 marks]

Current ratio

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Profitability ratio

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Solvency ratio

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Activity ratio

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Solution

The correct option is C Solvency ratio
Solvency ratios are used to evaluate the capability of a business to meet its long-term financial obligations.
Current ratio indicates the ability of a company to meet its current liabilities.
Profitability ratio assesses the business entity’s ability to earn profit from its operations.
Activity ratio measures how well the available resources have been used by the enterprise.

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Which ratio evaluates the capability of a business to meet its long-term financial obligations? [0.88 marks]

Which ratio evaluates the capability of a business to meet its long-term financial obligations?

[0.88 marks]