Pretty straightforward question.
Thanks for any/all explanations!
It doesn’t.
Thank you for the reply. I ask because I read it in an explanation for a question which I will post below:
"XYZ corporation revalues one of its long lived assets upward. Which of the following financial impacts is most unlikely to occur?"
Answer: Greater profitability in the period in which the revaluation was conducted
In the explanation, it states: "Solvency ratios will go lower as the increase in assets is accompanied by an equal increase in equity. Greater denominators and numerators that remain the same will lead to lower solvency ratios."
Thank you!
Solvency ratios would include Debt / total assets ; debt / equity. Both equity and assets will increase (denominators) when revaluing assets upwards while debt is unaffected (numerator), hence, the solvency ratios will decline.
Assets up, equity up. Debt/Assets down. Solvency ratios down. That’s a good thing.