Solvency Ratios: Operating and Financial Leverage

Solvency ratios are a measure of a company’s ability to:

Incorrect. Profitability ratios are indicative of a company’s ability to generate positive earnings.

Incorrect. The ability to meet short-term obligations is measured by liquidity ratios.

Correct. Solvency ratios are measures of a company’s ability to meet its long-term obligations, including debt principal, interest payments, and other contractual fixed charges such as lease and rental payments.

generate positive earnings.

meet its current obligations.

meet its long-term obligations.