# Solvency Ratio

Solvency ratio is a ratio that is used to measure the ability of a company to meet ist long term commitments or obligations. It measures a company's ability to service debt and is expressed as a percentage. It is computed as:

Net profit after taxes + Depreciation
Long term liabilities + Short term liabilities

Higher the ratio, the better indication that the company is in a sound financial health and would be able to meet its debt obligations. Higher the ratio, higher is the degree of comfort enjoyed by the creditors of the company. A low ratio on the other hand may indicate the likelyhood of default on debt commitments by the company. This ratio is also closely watched by potential lenders to assess the risk involved in lending and gauge the ability of the company to repay the amount. The ratio however varies from one industry to another and must be compared with the norms for the industry to assess if the company has a decent solvency ratio.

Example:

A company earned a net profit of \$452,435 during the year 2009. The depreciation expense for the year amounted to \$38,754. The company had short term liabilities of \$1,234,964 and long term liabilities of \$2,765,432. Calculate the company's solvency ratio.

\$452,435 + \$38,754
\$1,234,964 + \$2,765,432

=> 12.28%

Online Live Tutor Solvency Ratio:

We have the best tutors in accounts in the industry. Our tutors can break down a complex Solvency Ratio problem into its sub parts and explain to you in detail how each step is performed. This approach of breaking down a problem has been appreciated by majority of our students for learning Solvency Ratio concepts. You will get one-to-one personalized attention through our online tutoring which will make learning fun and easy. Our tutors are highly qualified and hold advanced degrees. Please do send us a request for Solvency Ratio tutoring and experience the quality yourself.

Online Solvency Ratio Help:

If you are stuck with a Solvency Ratio Homework problem and need help, we have excellent tutors who can provide you with Homework Help. Our tutors who provide Solvency Ratio help are highly qualified. Our tutors have many years of industry experience and have had years of experience providing Solvency Ratio Homework Help. Please do send us the Solvency Ratio problems on which you need Help and we will forward then to our tutors for review.

Topics under Other Ratios: