Check sibling questions
Accounts and Finance
Step 7 Ratio Analysis

What are Solvency Ratios?

They help in determining whether company will be able to repay its long term debts.

Hence it helps in finding out whether company will be able to survive over a long period of time

 

Important Solvency Ratios

S.no.

Ratio Name

Formula

Ideal Ratio

What is  better

Remarks

1

Debt equity Ratio

Long term Debts / Equity

Max 2.5:1, Ideal 1:1

Lower the better

Debts=Long Term Loan

 

Equity=Capital+Reserves

2

Debt to Total Funds

Long term Debts / Long term loans + share holders fund

Max 2.5:(2.5+1),

 

Ideal

1:(1+1)

Lower the better

Debts=Long Term Loans

Equity=Capital+Reserves..

Total Fund=Debt+ Equity

 

What is Capital Structure of a Business?

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Davneet Singh is a graduate from Indian Institute of Technology, Kanpur. He has been teaching from the past 12 years. He provides courses for Maths and Science at Teachoo.