Which of the following strengthens a company's solvency

Q: Answer-Which of the following strengthens a company's solvency position?

Solvency refers to a companys long-term financial health and its ability to meet long-term obligations. Reducing debt and increasing equity improves the debt-to-equity ratio and strengthens the solvency position.

position?

A Increasing short-term borrowings only Correct Answer Incorrect Answer

B Reducing long-term debt and increasing retained earnings (equity) Correct Answer Incorrect Answer

C Increasing inventory levels drastically Correct Answer Incorrect Answer

D Paying dividends financed by debt Correct Answer Incorrect Answer

Solution

Solvency refers to a company's long-term financial health and its ability to meet long-term obligations. Reducing debt and increasing equity improves the debt-to-equity ratio and strengthens the solvency position.

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