Which of the following solvency positions would a company consider most favourable?
A)A high debt to total assets ratio and a low times interest earned ratio
B)A low debt to total assets ratio and a high times interest earned ratio
C)A high debt to total assets ratio and a high times interest earned ratio
D)A low debt to total assets ratio and a low times interest earned ratio

Question

Quizplus · Accepted Answer

A low debt to total assets ratio indicates that the company has fewer obligations to creditors relative to its total assets, making it a more financially stable position. A high times interest earned ratio indicates that the company is generating sufficient earnings to cover its interest expenses, which reduces the risk of defaulting on its debt. Therefore, a low debt to total assets ratio and a high times interest earned ratio indicate a company's most favorable solvency position.

Which of the Following Solvency Positions Would a Company Consider