Long-Term Creditors Are Usually Most Interested in Evaluating

question 70

Multiple Choice

Long-term creditors are usually most interested in evaluating

• A) liquidity and solvency.
• B) solvency and marketability.
• C) liquidity and profitability.
• D) profitability and solvency.

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Definitions:

Financial Leverage

The use of borrowed funds to increase the potential return of an investment, amplifying both gains and losses.

Earnings Per Share (EPS)

A financial ratio that measures the portion of a company's profit allocated to each outstanding share of common stock.

EBIT

EBIT stands for earnings before interest and taxes, and it's a measure of a firm's profit that includes all expenses except interest and income tax expenses.

Operating Leverage (DOL)

A measure of how revenue growth translates into growth in operating income, indicating the fixed versus variable costs of a business.