Calculated by dividing the total of net income, interest expenditure, and income tax expense by interest expense, this solvency indicator shows a company's capacity to make interest payments.
A low solvency ratio indicates an unstable financial condition, while a high ratio indicates stability. To get a clear view of the company's liquidity and solvency, potential investors utilize this figure in conjunction with others, like the debt-to-equity ratio, the debt-to-capital ratio, and more.
The solvency ratio measures the efficiency with which a company's cash flow can pay down its long-term debt. Solvency ratios, which can be used to estimate a company's likelihood of going into default on its debt, are an important statistic for assessing a company's financial health.
It is calculated by dividing the sum of the business's debt obligations by the sum of its capital, which includes both equity and debt. Interest coverage ratio: This ratio demonstrates the company's capacity to pay interest to its creditors and lenders.
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