Ratio - Edubook - Solvency ratio

8 important questions on Ratio - Edubook - Solvency ratio

What shows the solvency ratio?

Solvency ratios show whether a business is able to redeem all its debts if the company were to cease to exist. A company can be discontinued either voluntarily or forced (in case of bankruptcy).

Formula of 'interest coverage ratio'

Interest coverage ratio = (operating result)/(interest expenses)

The solvency of a business is particularly important for providers of equity.

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By calculating the solvency, debt providers gain an idea of the buffer a business has in case of liquidation.

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The solvency ratios are calculated based on the liquidation value of the assets.

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For debt providers, the higher the debt ratio, the better.

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The interest coverage ratio should at least be 1 to be able to pay the interest expenses from the achieved profit.

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The guaranteed capital is an important indicator for debt providers.

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