Solvency Ratio
What is the Solvency Ratio?
A Solvency Ratio is a financial ratio that measures a company’s solvency, which is the extent to which the company is able to meet its long-term financial obligations. It is calculated as the ratio of equity to total assets of a company. It indicates the extent to which the company can pay off its debts using its equity, such as reserves and retained earnings.
A higher Solvency Ratio indicates that a company has sufficient financial resources to pay off its debts in the long term and that it is financially sound and stable. A lower Solvency Ratio may indicate financial risks and a higher probability of bankruptcy. The Solvency Ratio is often used by investors, creditors, and other stakeholders to assess the financial health of a company.