Q5. List of solvency ratios
What are the key financial ratios to analyze the solvency of an entity?
A5.
Solvency ratios are calculated as follows:
(1) Debt to equity ratio
= Total liabilities / Total stockholders’ equity
(2) Debt to assets ratio
= Total liabilities / Total assets
(3) Long-term debt to assets ratio
= Long-term liabilities / Total assets
(4) Times interest earned ratio = (A) / (B)
Where,
(A) = Earnings before interest and taxes (EBIT)
(B) = Interest expense
Earnings before interest and taxes (EBIT)
= Net income + Interest expense + Tax expense
(5) Assets to equity ratio
= Financial leverage ratio
= Average total assets / Average stockholders’ equity
© AccountingInfo.com