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

Ratio Name


Ideal Ratio

What is  better



Debt equity Ratio

Long term Debts / Equity

Max 2.5:1, Ideal 1:1

Lower the better

Debts=Long Term Loan




Debt to Total Funds

Long term Debts / Long term loans + share holders fund

Max 2.5:(2.5+1),




Lower the better

Debts=Long Term Loans


Total Fund=Debt+ Equity


What is Capital Structure of a Business?

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CA Maninder Singh

CA Maninder Singh is a Chartered Accountant for the past 13 years. He also provides Accounts Tax GST Training in Delhi, Kerala and online.