Question

Which ratios provide information critical to the long-run operation of the firm?

• A. Liquidity
• B. Activity
• C. Solvency
• D. Profitability

Hint:

Solvency ratios reflect long-term financial strength and debt-paying ability.

Answer 1

The Correct Option is C

Solvency ratios determine the firm's long-term financial stability and ability to meet future obligations. They include debt-equity ratio, proprietary ratio and interest coverage ratio. Liquidity ratios indicate short-term ability, activity ratios measure efficiency and profitability ratios show earnings. Long-run survival depends on the firm's capacity to repay long-term debts, which is why solvency ratios provide the most critical information for long-term operations.