solvency ratios indicate whether an organization is in a position to meet both its short term and long term liabilities.they indicate the financial position of the organization.The management would
manipulate solvency ratios for their own benefits. The compensation of the
executives of an organization is dependent upon the financial performance of
the organization. It, therefore, compels
the management to paint a rosy picture of the financial performance of the
organization. This will ensure that the financial performance expectations are
met thus shore up their personal compensation.