Solvency ratios calculation

  • Solvency ratios (44): Give the analyst information on firm’s financial leverage and ability to meet long term obligations
    • Debt ratios (45): based on balance sheet
      • Suggest reliance on debt as a source of financing 
      • Total debt is calculated differently by different analyst
        • Long term debt + interest bearing current liabilities
    • Debt to capital ratios (46)
    • Debt to asset ratios (47) 
    • Financing leverage (48) 
      • Average: average of the beginning and the end of each period
    •  Interest coverage (49)
      • Lower the ratio, the more likely the firm have difficulty meeting debt payments
    • Fixed charge coverage (50) 
      • Significant lease obligation will reduce ratio significantly