{"id":27918,"date":"2015-04-06T02:24:24","date_gmt":"2015-04-06T02:24:24","guid":{"rendered":"http:\/\/vskills.in\/certification\/blog\/?p=27918"},"modified":"2024-04-03T13:22:55","modified_gmt":"2024-04-03T07:52:55","slug":"ratio-analysis-solvency-ratio","status":"publish","type":"post","link":"https:\/\/www.vskills.in\/certification\/blog\/ratio-analysis-solvency-ratio\/","title":{"rendered":"Ratio Analysis: Solvency Ratio"},"content":{"rendered":"

\"Ratio<\/a><\/p>\n

Solvency ratio indicates the degree of creditors\u2019 funds in relation to owner\u2019s equity. The debt component requires fixed interest payments and repayment of the loan. A relatively high proportion of funds contributed by the owners indicates a surplus which shields creditors against possible losses from default in payment. Financial leverage will be the advantage to the equity shareholders if the rate of earnings on capital employed is greater than the rate payable on borrowed funds.<\/p>\n

Debt Equity Ratio=Total Liabilities \/ Total Equity<\/b><\/b><\/p>\n

This ratio measures the portion of\u00a0 fund of\u00a0 suppliers, lenders &\u00a0 creditors\u00a0 in relation to the shareholders fund.\u00a0 This ratio indicates the extent to which debt is covered by shareholders\u2019 funds. A lower ratio is always safer than the higher. Low ratio reflects an in-efficient use of equity &\u00a0 high ratio reflects\u00a0 the more use of debt than\u00a0 equity.<\/p>\n

Interest Coverage Ratio<\/b>=Earning Before interest & Tax<\/strong> \/ Interest on Long Term Funds<\/b><\/p>\n

This ratio measures the number of times a company can cover its fixed\u00a0 interest expenses on its long term funds. The lower\u00a0 ratio indicate that\u00a0 the company is burdened\u00a0 due to debt. A company should\u00a0 maintain interest coverage ratio\u00a0 1.5 or more.<\/p>\n

Proprietor Ratio= Share Holders Fund\/ Total Assets<\/strong><\/p>\n

This ratio find the share of shareholders in the total assets. Share holders fund includes equity share capital, preference share capital, general reserve, profit & loss. Total assets includes all non-current assets and current assets.<\/p>\n

Assets Turnover Ratio= Net Sales\/Total Assets<\/strong><\/p>\n

This ratio gives us the information of net sales in relation of total assets. Net sales means all cash & Credit sale less return inward.<\/p>\n

 <\/p>\n

Click here for government certification in Accounting, Banking & Finance<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Solvency ratio indicates the degree of creditors\u2019 funds in relation to owner\u2019s equity. The debt component requires fixed interest payments and repayment of the loan. A relatively high proportion of funds contributed by the owners indicates a surplus which shields creditors against possible losses from default in payment. Financial leverage will be the advantage to…<\/p>\n","protected":false},"author":964,"featured_media":28106,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_joinchat":[],"footnotes":""},"categories":[1519],"tags":[3044,3045,3042,3043],"class_list":["post-27918","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-accounting-banking-and-finance","tag-creditors-funds","tag-owners-equity","tag-ratio-analysis","tag-solvency-ratio"],"acf":[],"yoast_head":"\nRatio Analysis: Solvency Ratio - Vskills Blog<\/title>\n<meta name=\"description\" content=\"Ratio Analysis: Solvency Ratio. Read to find out about the different solvency ratios. Take Vskills Certification in the same. 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