SOLVENCY RATIO : To evaluate whether a company can pay its long term debts.
Examples of Solvency Ratio:
1) DEBT-TO-ASSET-RATIO
1) DEBT-TO-ASSET-RATIO
DEBT-TO-ASSET-RATIO = TOTAL DEBT / TOTAL ASSET
To measure the percentages of asset financed by debt.
2) DEBT-TO-EQUITY-RATIO
To measure the percentages of asset financed by debt.
2) DEBT-TO-EQUITY-RATIO
DEBT-TO-EQUITY-RATIO = TOTAL DEBT / TOTAL SHAREHOLDERS' EQUITY
To measure proportions of capital that are financed by debt and equity.
3) FINANCIAL LEVERAGE RATIO
To measure proportions of capital that are financed by debt and equity.
3) FINANCIAL LEVERAGE RATIO
FINANCIAL LEVERAGE RATIO = TOTAL ASSET / TOTAL EQUITY
To measure the amount of assets that can be created by one unit of equity. Higher financial leverage ratio means company uses more financial leverage such as debt and borrowing to finance its assets.
4) INTEREST COVERAGE
To measure the amount of assets that can be created by one unit of equity. Higher financial leverage ratio means company uses more financial leverage such as debt and borrowing to finance its assets.
4) INTEREST COVERAGE
INTEREST COVERAGE = EARNING BEFORE INTEREST & TAX / INTEREST PAYMENT
To determine whether the profit earned by company enough or not to pay off interest from borrowing.
To determine whether the profit earned by company enough or not to pay off interest from borrowing.
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