Question

State whether the following statement is True or False.

Long-term borrowings are concerned about the ability of a firm to discharge its obligations to pay interest and repay the principal amount.

Answer 1

This statement is true.

Explanation:

Long-term borrowings check whether a company can consistently pay its yearly interest and safely return the principal amount upon maturity. Financial institutions and lenders track these loans to judge long-term safety and debt-paying capacity. A company with weak earnings faces a high risk of defaulting on these permanent commitments. Thus, these borrowings directly reflect the long-term solvency and financial stability of a business.