Solvency Ratios

Solvency ratios are financial metrics that assess a company's ability to meet its long-term debt obligations. Essentially, they measure the relationship between a company's assets (what it owns) and its liabilities (what it owes). A higher solvency ratio indicates better financial health, suggesting that the company can pay off its long-term debts without straining its resources. Common solvency ratios include the debt-to-equity ratio and the interest coverage ratio. Investors and creditors use these ratios to evaluate a company's financial stability and risk before making investment or lending decisions.