Answer to Question #113319 in Management for zuks

Question

Which fanancial ratio is used by providers of loan capital to determine the degree to which a business can meet its debt obligations fully and punctually in the normal course of events?
1.the current ratio
2.the solvency ratio
3.the debt ratio
4.the gearing ratio

Answer 1

The financial ratio used by loan capital providers to determine the degree to which a business can meet its debt obligations fully and punctually in the ordinary course of events is known as the solvency ratio. When the company solvency ratio is lower, the probability that defaults on its debt commitments is higher. However, the solvency ratio indicates whether the cash flow of the company is sufficient to satisfy its short and long-term liabilities.