Solvency - Solvency Now suppose that instead of being a...

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Solvency Now suppose that instead of being a short-term creditor, you are interested in either buying Best Buy's stock or extending the company a long-term loan. Long-term creditors and stockholders are interested in a company's solvency —its ability to pay interest as it comes due and to repay the balance of a debt due at its maturity. Solvency ratios measure the ability of the company to survive over a long period of time. Debt to Total Assets Ratio. The debt to total assets ratio is one source of information about long- term debt-paying ability. It measures the percentage of total financing provided by creditors rather than stockholders. Debt financing is more risky than equity financing because debt must be repaid at specific points in time, whether the company is performing well or not. Thus, the higher the percentage of debt financing, the riskier the company. Helpful Hint Some users evaluate solvency using a ratio of liabilities divided by stockholders' equity. The higher this “debt to equity”
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Solvency - Solvency Now suppose that instead of being a...

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