1. A friend tells you that the best way to assess solvency is by comparing total debt to total assets. Another friend says that solvency is measured by comparing total debt to total stockholders’...

1. A friend tells you that the best way to assess solvency is by comparing total debt to total assets. Another friend says that solvency is measured by comparing total debt to total stockholders’ equity. Which friend is correct?

2. What is the rationale for deducting dividends when computing the ratio of cash flow from operations to capital expenditures?