# Review of solvency ratios

Q45. Review of solvency ratios
Calculate the following solvency ratios based on the information below:
(1) Debt to equity ratio
(2) Debt to assets ratio
(3) Long-term debt to assets ratio
(4) Times interest earned ratio
(5) Assets to equity ratio

Current liabilities = $300,000 Long-term liabilities =$1,500,000
Total liabilities = $1,800,000 Total stockholders’ equity =$1,200,000
Total assets = $3,000,000 Average stockholders’ equity =$1,100,000
Average total assets = $2,750,000 Net income =$350,000
Interest expense = $50,000 Tax expense =$125,000
Earnings before interest and taxes (EBIT) = $525,000 A45. (1) Debt to equity ratio = Total liabilities / Total stockholders’ equity =$1,800,000 / $1,200,000 = 1.5 (2) Debt to assets ratio = Total liabilities / Total assets =$1,800,000 / $3,000,000 = 0.6 (3) Long-term debt to assets ratio = Long-term liabilities / Total assets =$1,500,000 / $3,000,000 = 0.5 (4) Times interest earned ratio = Earnings before interest and taxes (EBIT) / Interest expense = (Net income + Interest expense + Tax expense) / Interest expense = ($350,000 + $50,000 +$125,000) / $50,000 =$525,000 / $50,000 = 10.5 (5) Assets to equity ratio = Average total assets / Average stockholders’ equity =$2,750,000 / \$1,100,000 = 2.5