Solvency Ratios

Evaluate the solvency of any business

Download the free financial ratio ebook and find out which 9 ratios to use to evaluate the solvency of any business.

Solvency and leverage ratios measure how well a company is able to meet it’s long-term debt commitments. In this section, we cover the most important solvency ratios you need to know.

What are solvency ratios?

Solvency ratios, also known as leverage ratios, look into a company’s capacity to maintain operations by analyzing its debt levels with respect to its assets, equity, and income.

Solvency ratios pinpoint financial issues going on in the business and its ability to cover its bills over the long term. A lot of people think solvency ratios are the same as liquidity ratios.

While the two assess a company’s ability to settle its debts to creditors, banks and bondholders, solvency ratios are more concerned with the longevity than current liabilities. Good solvency ratios mean the company is creditworthy and financially healthy overall.

List of solvency ratios

Below is the complete list of solvency and leverage ratios we have covered. Each will provide a detailed overview of the ratio, what it’s used for, and why.

They also explain the formula behind the ratio and provide examples and analysis to help you understand them.

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  • Cash Earnings Per Share (Cash EPS)
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  • Cash Flow Adequacy Ratio
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  • Cash Flow Coverage Ratio
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  • Correlation Coefficient
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  • Current Yield
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  • Days Cash on Hand
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  • Days Payable Outstanding (DPO)
    Days payable outstanding (DPO) is a ratio measuring the average time a company takes to pay its invoices & bills to suppliers and vendors.
  • Days Sales in Inventory (DSI)
    Days sales in inventory (DSI) refers to a financial ratio showing the number of days a company takes to turn over all its inventory.
  • Days Sales Outstanding (DSO)
    Days Sales Outstanding (DSO) refers to the average number of days a company takes to collect its payments from the creditors.
  • Days Working Capital
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  • Debits and Credits
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  • Debt Ratio
    Debt ratio is a measurement that indicates how much leverage a company uses to finance its operation by using debt instead of its truly owned capital or equity.
  • Debt Service Coverage Ratio
    The debt coverage ratio is used to determine whether or not a company can turn enough of a profit to cover all of its debt.
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  • Debt to Asset Ratio
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  • Debt to Capital Ratio
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  • Debt to EBITDA Ratio
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  • Debt to Equity
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  • Debt to Net Worth Ratio
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  • Defensive Interval Ratio (DIR)
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  • Depreciation
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