Final answer:
The correct answer is (c) Leverage ratios, which are crucial for assessing a firm's capital structure and long-term solvency. Financial capital comes from various sources including reinvested profits, borrowing, and selling stock, each with its own implications for the business's growth and ownership.
Step-by-step explanation:
The category of ratios useful in assessing the capital structure and long-term solvency of a firm is (c) Leverage ratios. Leverage ratios, such as the debt-to-equity ratio and the debt ratio, provide insight into the level of a company's debt relative to its equity, indicating how a company finances its operations and growth, and how capable it is of meeting long-term obligations.
Financial capital refers to the funds provided by lenders and investors that allow businesses to make investments and generate profits. Profits can be a source of financial capital when they are reinvested back into the company. Alternatively, firms might choose to raise financial capital by borrowing through banks or bonds, or by selling stock. Each method comes with its own set of benefits and costs, and businesses must weigh these carefully when deciding on their capital structure.
The decision on whether to use profits, debt, or equity to finance operations is critical to a firm's survival and growth. When considering early-stage investors, firms may opt for selling stock to raise capital without incurring debt, yet this dilutes ownership. Meanwhile, established firms often prefer to use reinvested profits or to borrow, keeping control but committing to fixed payments.