Answer:
Solvency ratio __ measures a company's ability to pay its debt while ___Profitability ratio measures the company's ability to earn a profit
Step-by-step explanation:
a) For instance, let us assume a hypothetical company called Midex Corporation. The financial measure that shows the company's ability to meet its debt obligations is known as the solvency ratio. For prospective fund lenders, they find it useful in order to decide whether to go ahead with requests for more funding. This implies that the solvency ratio indicates whether Midex's cash flow is sufficient to meet its short-and long-term liabilities. To calculate the solvency ratio, divide the company's after-tax net operating income by its total debt obligations. Midex's net after-tax income is derived by adding the non-cash expenses, such as depreciation and amortization, back to the net income.
b) In the same light, Midex Corporation's profitability ratios measure the corporation's ability to earn a profit in relation to these bases: its sales revenue, operating costs, balance sheet assets, and shareholders' equity. These financial metrics can also show how well Midex has managed its assets to produce profits and value for its shareholders.