Total Net Worth to Total Assets Ratio

A

The correct answer to the question is A) Solvency ratio.

The solvency ratio is a financial metric used to assess a company's ability to meet its long-term debt obligations. It is calculated by dividing a company's total net worth by its total assets. The result is a ratio that measures the degree of exposure to insolvency, which refers to the risk of being unable to pay off debts as they come due.

Total net worth is the sum of a company's assets minus its liabilities. It represents the residual value of a company after all debts and obligations have been paid off. Total assets, on the other hand, include all the resources that a company owns, such as cash, investments, property, and equipment.

The solvency ratio is an important indicator of a company's financial health, as it shows the extent to which a company's assets are financed by its own capital rather than debt. A high solvency ratio indicates that a company has a strong financial position and is less likely to experience financial difficulties in the future. On the other hand, a low solvency ratio indicates that a company is heavily reliant on debt financing and may be at risk of defaulting on its debt obligations.

In summary, the solvency ratio is a measure of a company's ability to meet its long-term debt obligations. It is calculated by dividing total net worth by total assets and is an important indicator of a company's financial health and exposure to insolvency.