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What are the most common solvency ratios used by investor or management to understand the current state of a company’s financial situation?

Solvency refers to a company’s ability to meet its long-term obligations and will be affected by the amount of debt in its capital structure. The ratios that you should use to calculate a company’s solvency include the total debt ratio, debt-to-capital ratio, debt-to-equity ratio, and times interest earned ratio.

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    The debt-to-equity ratio is indicative of the degree of financial leverage used. It essentially is used to determine how much debt has been used to finance its assets value relative to the value of shareholders’ equity. The debt-to-equity ratio is used to indicate the degree of protection to creditors in the case of insolvency. For […]

  • How to calculate the times interest earned ratio?

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  • How to calculate asset turnover?

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