Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

14. Financial Statement Analysis

Ratios: Return on Assets (ROA)

Financial Accounting

14. Financial Statement Analysis

Ratios: Return on Assets (ROA)

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Multiple Choice

Long-term solvency ratios measure what aspect of a firm's financial position?

The firm's efficiency in managing inventory

The firm's ability to generate cash from operations

The firm's ability to meet its long-term debt obligations

The firm's profitability relative to its total assets

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Verified step by step guidance

Step 1: Understand the concept of long-term solvency ratios. These ratios are financial metrics used to assess a firm's ability to meet its long-term debt obligations. They provide insights into the firm's financial stability and leverage over an extended period.

Step 2: Differentiate long-term solvency ratios from other financial metrics. For example, inventory management efficiency is measured by inventory turnover ratios, cash generation is assessed through cash flow ratios, and profitability relative to assets is evaluated using return on assets (ROA).

Step 3: Identify the key ratios that fall under long-term solvency. Examples include the debt-to-equity ratio, interest coverage ratio, and debt ratio. These ratios focus on the firm's capital structure and its ability to service debt.

Step 4: Analyze why the correct answer is 'The firm's ability to meet its long-term debt obligations.' Long-term solvency ratios specifically address the firm's capacity to handle its financial commitments over time, which directly relates to its debt obligations.

Step 5: Conclude by emphasizing the importance of these ratios for stakeholders, such as investors and creditors, who rely on them to evaluate the firm's financial health and risk of default on long-term liabilities.