A Financial Analyst Is Evaluating the Solvency and Liquidity of Flagstaff

Multiple Choice

A financial analyst is evaluating the solvency and liquidity of Flagstaff Manufacturing and has collected the following data: $$\begin{array} { | l | r | r | r | } \hline & \underline { \mathbf { 2 0 X 7 } } & \underline { \mathbf { 2 0 X 6 } } & \underline { \mathbf { 2 0 X 5 } } \\\hline \text { Total debt } & \$ 2,000 & \$ 1,900 & \$ 1,750 \\\hline \text { Total equity } & \$ 4,000 & \$ 4,500 & \$ 5,000 \\\hline\end{array}$$ What would the analyst be most likely to conclude?

A) The company is becoming increasingly less solvent as evidenced by the increase in its debt to equity ratio from 0.35 in 20X5 to 0.50 in 20X7.
B) The company is becoming increasingly less liquid as evidenced by the increase in its debt to equity ratio from 0.35 in 20X5 to 0.50 in 20X7.
C) The company is becoming increasingly more solvent as evidenced by the increase in its debt to equity ratio from 0.35 in 20X5 to 0.50 in 20X7.
D) The company is becoming increasingly more liquid as evidenced by the increase in its debt to equity ratio from 0.35 in 20X5 to 0.50 in 20X7.