The interest expense to debt ratio (IE/D) determines the rate of interest paid by a business on its total debt. It’s a solvency…
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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/Leverage 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.
The Complete 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.