Which of the following ratios is most useful in evaluating solvency?
A)Debt to equity ratio.
B)Current ratio.
C)Receivables turnover ratio.

Question

Quizplus · Accepted Answer

The debt to equity ratio measures the relationship between a company’s borrowed funds and the funds contributed by its shareholders. By evaluating this ratio, it can be determined if a company has enough equity to cover its debts and remain solvent. A high debt to equity ratio indicates that the company has borrowed more money than it can repay with its equity, whereas a low debt to equity ratio indicates that the company has a strong financial position. Thus, the debt to equity ratio is the most useful in evaluating solvency. The current ratio and receivables turnover ratio are useful in evaluating liquidity and efficiency, respectively.

Which of the Following Ratios Is Most Useful in Evaluating