FinancialQuotient

What is solvency ratio?

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Solvency ratio is an important metric to assess a firm's ability to pay off its debt in the long run. There are two types: debt-solvency ratios and coverage-solvency ratios.

Debt-solvency ratios can be obtained from the items in the balance sheet while coverage-solvency ratios can be obtained from those in the income statement.

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A version of this article appeared in the print edition of The Sunday Times on February 16, 2020, with the headline What is solvency ratio?. Subscribe