solvency ratios

Question 1

financial leverage

Answer 1

taking debt to finance something that brings more profit

Question 2

advantage

disadvantage

Answer 2

increases return on investments
tax advantages

high risk of bankrupt when not able to pay for debt

Question 3

solvency ratio

Answer 3

total asstes/total liabilities

Question 4

debt-equity ratio

Answer 4

total liabilities/total owners equity

Question 5

long-term debt to capitalization

Answer 5

long term-debt/ long term debt and owners equity

Question 6

number of times interest earned ratio

Answer 6

ebit/interest expense

Question 7

fixed charge coverage ratio

Answer 7

ebit lease expense/interest expense and lease expense

Question 8

debt service coverage ratio

Answer 8

net operating income-cash transfers to replacement reserves/debt service payment

Question 9

operating cash flows to total liabilities ratio

Answer 9

operating cash flows/ average total liabilities

Question 10

what for?

Answer 10

to see to what extent the enterprise is financed by debt and is able to meet its long term obligations