Question

The optimum credit policy is determined by the trade off between:
(A) Liquidity & profitability
(B) Liquidity & Solvency
(C) Liquidity & Stability
(D) Profitability & Solvency​

Answer 1

Explanation:

A}. Liquidity & solvency

I hope it may help to you

Answer 2

Answer:

Profitability & Solvency​

Explanation:

The optimum credit policy is determined by the trade off between Profitability & Solvency​.

1. Profitability Ratio or Income ratio

• Profit is measurement of efficiency of the business.
• the main object of all business concerns us to earn profits.
• Profitability Ratio or Income ratio measures the various aspects of the profitability of a company or concern such as:

1. "What is the rate of profit on revenue from operation ?"
2. "Whether profits are increasing or decreasing?"

• Some Important Profitability Ratio or Income ratio are

1. Gross Profit Ratio
2. Operating Ratio
3. Operating Profit Ratio
4. Net Profit Ratio
5. Return on Investment( ROI)

   2. Solvency Ratio

• These ratios are calculated to assess the ability of the firm to meet its long term liabilities.
• These ratio reveals that how much amount is invested from our own pocket and how much raised form outside sources.
• Solvency ratios helps to disclose firm's or concern ability to meet its interest costs regularly.  

• Some Important Solvency Ratio are as follows:

1. Debt equity ratio
2. Total asset to debt ratio
3. Interest coverage ratio
4. Proprietary ratio

Thus, when we talk about optimum credit policy we look into firms Profitability & Solvency​ Ratios,

It reveals that firms is able to meet its long term debt and after paying the firm have enough profit or not.

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