## Thursday, 3 January 2019

A solvency ratio analysis is a financial ratio that measure the ability company to meet. Its long-term obligations such as the payment of interest on the debt. The payment of the principal end up debt and other fix obligations. Long term debt usually defined as the obligation to pay the maturity of more than one year.

Although their solvency Ratio (Leverage ratio) and the liquidity Ratio was equally being the ratio. To measure the company's ability to meet its obligations. But both have differences in the period of the fulfillment of its obligations. Where the Solvency Ratio is the ratio that measures the company's ability. To meet long-term obligations while the liquidity ratio measures. The company's ability to meet its short term obligations or liability smooth.

Solvency ratio or Leverage ratio is to compare the overall debt burden of companies against asset or its equity. In other words, this ratio indicates. How much of the assets of the company own by shareholders in comparison with assets own by Creditors (debt giver).

If a shareholder having more assets, then the company is said to be less Leveraged. However, if the creditors (Debt giver) has a majority of assets, then the company in question is said to have a high degree of leverage. Solvency ratio or Leverage ratio is very helpful management and investors to understand how capital structure risk levels in the company.

## Types of Solvency Ratio or Leverage ratio

Below are some of the Solvency Ratio (Solvency Ratio) or a Leverage ratio is often used to measure a company's ability to meet long-term obligations.

### Debt to Equity Ratio (the ratio of the debt Against Equity)

The debt to Equity Ratio or ratio of Debt against Equity is a financial ratio that shows the relative proportion between equity and Debt use to finance the company's assets. The debt to Equity Ratio (DER) or ratio of Debt Against Equity is calculate by taking total debt obligations (Liabilities) and share them with equity (Equity). Below is the formula of the Debt to Equity Ratio (DER).

Debt to Equity Ratio (DER) = Total Debt/Equity

### Debt Ratio (Ratio of Debt)

The debt Ratio or Debt Ratio is the ratio use to measure how big companies rely on debt to finance its assets. Debt Ratio or Debt Ratio is calculate by distributing total debt (total liabilities) to total assets. A debt Ratio is often also refer to as Debt Ratio Against Total assets (Total Debt to Total Assets Ratio). The following is the formula of the ratio of debt (debt ratio):

Debt Ratio = Total Debt/Total Assets

Times Interest Earn Ratio

The times Interest Earn ratio is a measure of the ability of the company. To pay or cover interest expenses in the future. Times Interest Earn Ratio is also often refer to as Interest Coverage Ratio. How to calculate it is to divide the profit before taxes and interest with interest charges. The following is the formula the Times Interest Earn Ratio:

Times Interest Earned Ratio = profit before tax and interest/interest expenses