Solvency and leverage ratios measure how well a company is able to meet it’s long-term debt commitments. In this section, we cover the most important solvency ratios you need to know.

What are solvency ratios?

Solvency ratios, also known as leverage ratios, look into a company’s capacity to maintain operations by analyzing its debt levels with respect to its assets, equity, and income.

Solvency ratios pinpoint financial issues going on in the business and its ability to cover its bills over the long term. A lot of people think solvency ratios are the same as liquidity ratios.

While the two assess a company’s ability to settle its debts to creditors, banks and bondholders, solvency ratios are more concerned with the longevity than current liabilities. Good solvency ratios mean the company is creditworthy and financially healthy overall.

List of solvency ratios

Below is the complete list of solvency and leverage ratios we have covered. Each will provide a detailed overview of the ratio, what it’s used for, and why.

They also explain the formula behind the ratio and provide examples and analysis to help you understand them.

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  • Adjusting Entries
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  • Annual Income
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  • Annual Percentage Yield
    The annual percentage yield (APY) helps a business or investor to understand how much they are earning from the money they have invested with compounded interest.
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    An annuity is a financial product that pays out a series of cash flows at a specified frequency and over a fixed time period.
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    Annuity payment from future value is a formula that helps one to determine the value of cash flows in an annuity when the future value of the annuity is known.
  • Asset Accounts
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  • Asset Coverage Ratio
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  • Asset Purchase
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  • Asset Turnover
    The asset turnover ratio is a way to measure the value of a company’s sales compared to the value of the company’s assets.
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    The Average Cost Method, also commonly referred to as the AVCO method, is a method used to find the average cost of items recorded in an inventory.
  • Average Collection Period
    The average collection period is an estimation of the average time period needed for a business to receive payment for money owed to them.
  • Average Inventory Period
    Average inventory period refers to a financial ratio used to compute the average number of days a company takes before they sell all their current stock of inventory.
  • Average Payment Period (APP)
    Average payment period (APP) is a metric that allows a business to see how long it takes on average to pay its vendors.
  • Balance Sheet
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    Book value per share (BVPS) is the minimum cash value of a company and its equity.
  • Break-Even Point Analysis
    Break-even point analysis examines how much a company can safely stand to lose before descending below its break-even point.
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  • Capital Lease Accounting
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  • Capital Resources
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  • Capitalization Ratio
    The capitalization ratio, also referred to as the cap ratio, is an indicator that measures the ratio between a company’s debts within its capital structure—the combination of debts and equities.
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    The cash conversion cycle (CCC) is a measure of time indicated in days needed to convert inventory investments and other resources into sales-derived cash flow.
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    Cash earnings per share (Cash EPS) is a profitability ratio that compares a company’s cash flow against their volume of shares outstanding.
  • Cash Flow Adequacy Ratio
    The cash flow adequacy ratio is used to determine if the cash flow generated by a company is sufficient to pay for its ongoing expenses—for example, reductions in long-term debt, acquisition of fixed assets or paying dividends to shareholders.
  • Cash Flow Coverage Ratio
    The cash flow coverage ratio represents the relationship between a company’s operating cash flow and its total debt.
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    The cash flow to debt ratio is a coverage ratio that reflects the relationship between a company’s operational cash flow and its total debt.
  • Cash Flow to Sales Ratio
    Cash Flow to Sales Ratio is a performance metric that represents a business’s operating cash flow once all capital expenditures related to sales have been deducted.
  • Cash Ratio
    The cash ratio (also known as the cash coverage ratio) is a measurement of how well can the company pay its short-term debt in the form of cash and cash equivalent (investment items that immediately available to be turned into cash e.
  • Cash Reinvestment Ratio
    The cash reinvestment ratio, also known as the cash flow reinvestment ratio, is a valuation ratio used to measure the percentage of annual cash flow that the company invests back into the business as a new investment.
  • Cash Return On Assets Ratio
    The cash return on assets (cash ROA) ratio is a measure of the operational cash flow against the total assets owned by a business.
  • Cash Sales
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  • Cash to Current Assets Ratio
    Cash to current assets is a liquidity ratio that measures how much of the current assets in a company are made up of cash and cash equivalents.
  • Cash to Current Liabilities Ratio
    Cash to current liabilities ratio, also known as the cash ratio, is a cash flow measure that compares the firm’s most liquid assets to its short-term obligations.
  • Cash to Working Capital Ratio
    The cash to working capital ratio measures what percentage of the company’s working capital is made up of cash and cash equivalents such as marketable securities.
  • Cash Turnover Ratio (CTR)
    The cash turnover ratio (CTR) a profitability and efficiency ratio that measures how many times a company uses its cash to generate revenues.
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  • Classified Balance Sheet
    A classified balance sheet is a financial statement that reports the assets, liabilities and equity of a company.
  • Closing Entries
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  • Compound Annual Growth Rate (CAGR)
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  • Conservatism Principle
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  • Consistency Principle
    The consistency principle states that once a company adopts a certain accounting policy or method, it must be applied consistently in the future as well.
  • Consumption
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  • Continuous Compounding
    Continuous compounding is the mathematical limit reached by compound interest when it’s calculated and reinvested to an account balance over a theoretically endless number of periods.
  • Contra Accounts
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  • Contribution Margin
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  • Current Ratio
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  • Days Cash on Hand
    Days cash on hand is the number of days a company can keep up with its operating expenses using the cash available in the business.
  • Days Payable Outstanding (DPO)
    Days payable outstanding (DPO) is a ratio measuring the average time a company takes to pay its invoices & bills to suppliers and vendors.
  • Days Sales in Inventory (DSI)
    Days sales in inventory (DSI) refers to a financial ratio showing the number of days a company takes to turn over all its inventory.
  • Days Sales Outstanding (DSO)
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More financial ratios



1. What is a solvency ratio?

A solvency ratio is a measure of a company’s ability to pay off its long-term liabilities with its current assets.

2. How do you calculate the solvency ratio?

There are many ways to calculate the solvency ratio, but the most common is to use a company’s total liabilities divided by its total assets.

3. What are the types of solvency ratio?

The most common types of solvency ratio are the debt-to-equity ratio and the times-interest-earned ratio.

4. How many solvency ratios are there?

There are many different types of solvency ratios, but the most common is the debt-to-equity ratio and the times-interest-earned ratio.

5. Is solvency ratio same as liquidity ratio?

No, solvency ratio is not the same as liquidity ratio. The solvency ratio measures a company’s ability to pay off its long-term liabilities with its current assets, while liquidity ratio measures a company’s ability to meet its short-term obligations.

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