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 a lower risk of bankruptcy and can easily repay its debts. A high times interest earned (TIE) ratio indicates that the company generates enough operating income to cover its interest expense. Therefore, option B is the most favourable choice for a company's solvency position.

Which of the Following Solvency Positions Would a Company Consider