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Factors that reflect the ability of a business to pay its debts and earn a reasonable amount of income are referred to as solvency, profitability, and liquidity.

a.true
b.false

1 Answer

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Final answer:

The statement is true; solvency, profitability, and liquidity are key factors indicating a business's ability to pay debts and earn income.

Step-by-step explanation:

The assertion that the factors which reflect the ability of a business to pay its debts and earn a reasonable amount of income are solvency, profitability, and liquidity is true. Solvency refers to the ability of a business to meet its long-term debts and financial obligations. This is vital for a firm's survival, as it ensures the business can continue to operate over the long term.

Profitability, on the other hand, assesses whether a business is generating income or profits relative to its expenses and investments, which is necessary for sustaining operations and growth. Liquidity measures how quickly a company can convert its assets into cash to meet immediate and short-term obligations. A healthy business typically exhibits adequate levels of all three factors to maintain ongoing operations and to finance growth opportunities.

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