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Question
What is meant by solvency of business.
Solution
Solvency of business means the ability of business to meet its long term liabilities. Solvency ratios such as Debt to Equity Ratio, Total Asset to Debt Ratio, Interest Coverage Ratio, etc. are some of the important solvency ratios that help the investors to know whether the company’s cash flow is sufficient to meet its short term and long term liabilities. The better the solvency position of business, the better is the market standing of such firms.
RELATED QUESTIONS
From the Following information , compute Debt-Equity Ratio:
Rs.
Long Term Borrowings 2,00,000
Long Term Provision 1,00,000
Current Liabilities 50,000
Non-Current-Assets 3,60,000
Current -Assets 90,000
Give the meaning of 'Long-Term Provisions'.
From the Following information, compute Debt-Equity Ratio
| Rs | |
| Long-Term Borrowings | 8,00,000 |
| Long-Term Provision | 4,00,000 |
| Current Liabilities | 2,00,000 |
| Non-Current-Assets | 14,40,000 |
| Current -Assets | 3,60,000 |
Calculate Debt-Equity Ratio
| Particulars | Rs |
| Total Assets | 3,50,000 |
| Total Debts | 2,50,000 |
| Current Liabilities | 80,000 |
Pick the odd one out:
Dividend is paid on:
Debt-Equity Ratio of Z Ltd. is 2: 1. State with reason whether the following transactions will improve, decline or will not change the debt-equity ratio:
- Conversion of ₹ 3,00,000, 9% debentures into equity shares.
- Cash received from debtors ₹ 1,00,000.
- Redemption of ₹ 10,00,000, 11% debenture.
- Purchase of goods on credit ₹ 4,00,000.
Debt-Equity Ratio of Dhamaka Ltd is 3:1. Which of the following will result in decrease in this ratio?
State whether creditors would prefer lending to a company with a high Debt-Equity Ratio or a low Debt-Equity Ratio. Give a reason.
The Adani family has raised their stake in Ambuja Cements by the conversion of 21.20 crore warrants into shares in a transaction that will see them infusing nearly ₹ 6,661 crore.
- What is a share warrant?
- Mention the head under which Money received against Share Warrants is shown in the Balance Sheet of a company prepared as per Schedule III of the Companies Act, 2013.
Read the following news item of ITC Ltd. and answer the question that follows:
| The company’s board declared an interim dividend of ₹ 6.25 per share for the financial year ending March, 2024. The dividend will be paid between February 26-28, 2024, to the eligible shareholders. |
Which of the following are the attributes of interim dividend?
P: It is a charge against profits.
Q: It is an appropriation of profits.
R: Its declaration and payment will decrease the company’s Current Ratio.
S: Its declaration and payment will increase the company’s Debt Equity Ratio.
Bajaj Hindustan Sugar, one of the largest sugar and ethanol producers, in order to revive the company, has offered to invest ₹ 2,500 crore as fresh equity of which ₹ 1,000 crore has already been infused.
What will be the effect of this decision of Bajaj Hindustan Sugar on its DebtEquity Ratio?
