Which of the Following Ratios Provides a Solvency Measure That

question 17

Multiple Choice

Which of the following ratios provides a solvency measure that shows the margin of safety of noteholders or bondholders and also gives an indication of the potential ability of the business to borrow additional funds on a long-term basis?

• A) Ratio of net sales to assets
• B) Rate earned on stockholders' equity
• C) Number of days' sales in receivables
• D) Ratio of fixed assets to long-term liabilities

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Definitions:

Fixed Budgets

Financial plans that allocate a predetermined amount of resources for a specific period, not allowing for modifications based on actual income or expenses.

Policies and Procedures

Established guidelines and methods of operation that an organization sets to regulate its activities and achieve objectives efficiently and in compliance with legal standards.

Single-use Plans

Specific actions or strategies designed to address a particular problem, goal, or project, and not intended for repeated or continual use.

Budgets

Financial plans that allocate resources, project revenues and expenses, and guide spending and investment decisions over a specific period.