What are Solvency Ratios?
Solvency Ratios is also known as the leverage ratio which measures the ability of the company to
sustain the operation indefinitely by comparing equity with the debt level, assets and with earning.
Simply we can say that solvency ratio user for identify the concern issue and the ability of the company to pay bills in the large term.
Most of the people mix the solvency ratio with liquidity ratio. Because of these both ratio users for the measuring ability of the company to pay off its solvency ratio focus, an obligation for long term sustainability instead of the current liability payment.
To make payment for the company and for the long term obligation to bondholder, creditor and bank Solvency ratio is used.
If the solvency ratio is better then the company is credit-worthy and financially good company.