A company's long-term solvency A) can be measured by the gross profit percentage. B) can be measured by the days to collect receivables ratio. C) depends on the success of its operations and on its ability to raise capital for expansion. D) depends on its ability to generate cash for

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Duncan

Business

15 June, 06:42

A company's long-term solvency A) can be measured by the gross profit percentage. B) can be measured by the days to collect receivables ratio. C) depends on the success of its operations and on its ability to raise capital for expansion. D) depends on its ability to generate cash for

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Walker Leach · Answer 1

Option (C) is correct.

Explanation:

A company's long-term solvency depends upon the solvency ratio. Solvency ratio indicates the financial condition of a particular company which states that whether the company will be able to meet its short term and long term obligations or liabilities by its cash flow or not.

Solvency ratio is determined by dividing the net operating income after taxes by the total of short term and long term debt obligations.

Hence, there is a need of solvency and liquidity to stay still in the business.