What are Solvency Ratios?

Solvency Ratios are also often referred to as Leverage ratios. These ratios are conventional formulas used to check the solvency, which means company’s capacity to repay its debts in the long-term and going concern of an entity.
These solvency financial ratios measure if the entity is able to meet the long-term obligations, which it would have towards loan providers, banks or bondholders. Solvency ratios establish mathematical relationships between the amount of debt with assets, equity and profits of an entity.
Solvency Ratios can be compared with past ratios of the company, with the competitors or with industry norms. Good solvency ratios would indicate better credit worthiness of the entity and financial soundness in the long-term.

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