which one of the following is a measure of long-term solvency?
@aibot
Which one of the following is a measure of long-term solvency?
The measure of long-term solvency refers to the financial stability and ability of a company to meet its long-term obligations. There are several measures that can be used to assess long-term solvency. Some common measures include:
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Debt-to-Equity Ratio: This ratio compares a company’s total debt to its shareholders’ equity. It indicates the proportion of financing that comes from debt as opposed to equity. A lower ratio suggests a more favorable long-term solvency position.
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Times Interest Earned (TIE) Ratio: This ratio measures a company’s ability to meet its interest payments on outstanding debt. It is calculated by dividing the earnings before interest and taxes (EBIT) by the interest expenses. A higher TIE ratio indicates better long-term solvency.
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Debt Ratio: This ratio compares a company’s total debt to its total assets. It provides an indication of the proportion of assets that are financed by debt. A lower ratio suggests a more favorable long-term solvency position.
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Debt Service Coverage Ratio (DSCR): This ratio evaluates a company’s ability to meet its debt obligations from operating cash flow. It is calculated by dividing the operating income by the total debt service payments. A higher DSCR indicates better long-term solvency.
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Fixed Charge Coverage Ratio (FCCR): This ratio measures a company’s ability to meet its fixed costs, including interest expenses and lease payments. It is calculated by dividing the earnings before interest, taxes, depreciation, and amortization (EBITDA) by the sum of interest expenses and lease payments. A higher FCCR suggests better long-term solvency.
These are just a few examples of measures that can be used to assess long-term solvency. It is important to note that the choice of measure may vary depending on the industry and specific circumstances of the company being analyzed.