Which of the following are not long-term solvency ratios?Return on Shareholders EquityDebt Equity ratioDebt service coverage ratioLong-term debt to assets
Question
Which of the following are not long-term solvency ratios?
- Return on Shareholders Equity
- Debt Equity ratio
- Debt service coverage ratio
- Long-term debt to assets
Solution
The long-term solvency ratios are used to measure a company's ability to meet its long-term obligations. They provide insight into the long-term financial health of a company.
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Return on Shareholders Equity: This is not a long-term solvency ratio. It is a profitability ratio that measures the ability of a company to generate profits from its shareholders' investments.
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Debt Equity ratio: This is a long-term solvency ratio. It measures the financial leverage of a company and shows the proportion of a company's funding that comes from debt compared to equity.
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Debt service coverage ratio: This is a long-term solvency ratio. It measures a firm's ability to service its current debts.
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Long-term debt to assets: This is a long-term solvency ratio. It measures the proportion of a company's assets that are financed by long-term debt.
So, the Return on Shareholders Equity is not a long-term solvency ratio.
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