The correct answer is: D. All are correct
Long-term solvency is the ability of a company to pay its long-term debts. It is important for companies to have a good long-term solvency because it indicates that they are financially stable and will be able to continue operating in the future.
There are a number of ratios that can be used to measure long-term solvency. The asset liability ratio, debt equity ratio, and interest coverage ratio are three of the most common.
The asset liability ratio is a measure of the company’s ability to meet its short-term obligations. It is calculated by dividing the company’s current assets by its current liabilities. A high asset liability ratio indicates that the company has a good cushion to meet its short-term obligations.
The debt equity ratio is a measure of the company’s financial leverage. It is calculated by dividing the company’s total debt by its total equity. A high debt equity ratio indicates that the company is using a lot of debt to finance its operations. This can be risky, as it means that the company is more likely to default on its debt if its financial performance deteriorates.
The interest coverage ratio is a measure of the company’s ability to pay its interest expenses. It is calculated by dividing the company’s earnings before interest and taxes (EBIT) by its interest expense. A high interest coverage ratio indicates that the company has a good cushion to pay its interest expenses.
All of these ratios can be used to assess a company’s long-term solvency. However, it is important to note that no single ratio is a perfect indicator of long-term solvency. It is important to consider all of the ratios, as well as other factors, such as the company’s industry and its financial history, when assessing a company’s long-term solvency.