Question

Which of the following ratios are computed for evaluating solvency of the business?
Proprietary Ratio
Interest Coverage Ratio
Total Asset to Debt Ratio
Fixed Asset Turnover Ratio

• A. (A), (B) and (D) only
• B. (A), (B) and (C) only
• C. (A), (B), (C) and (D)
• D. (B), (C) and (D) only

Answer 1

Answer: (B)

(A), (B) and (C) only

Answer 2

Proprietary Ratio: Measures the proportion of shareholders’ equity to total assets, indicating the financial stability of the business. - Interest Coverage Ratio: Assesses the ability of the business to meet its interest obligations, which is a key indicator of solvency. - Total Asset to Debt Ratio: Shows the extent to which a business’s assets can cover its debts, crucial for solvency evaluation. - Fixed Asset Turnover Ratio: This ratio measures the efficiency of fixed assets in generating sales, which is related to operational performance rather than solvency.