Solvency Ratios

Question 1

Debt to Total Assets

Answer 1

• The proportion of a company’s assets financed by debt.
• High debt to total assets ratio indicates that the company is highly leveraged.

Question 2

Leverage Ratio

Answer 2

• The proportion of a company’s debt to its equity.
• A high leverage ratio indicates that the company is highly leveraged and may be at a higher risk of default

Question 3

Long-term leverage Ratio

Answer 3

• The proportion of a company’s long-term debt to its equity.
• A high long-term leverage ratio indicates that the company is highly leveraged and may be at a higher risk of default.

Question 4

Total Debt to EBITDA

Answer 4

• A company’s ability to pay off its debt with its earnings before interest, taxes, depreciation, and amortization (EBITDA)
• A high total debt to EBITDA ratio indicates that the company may have difficulty paying off its debt.

Question 5

Interest Coverage Ratio

Answer 5

• A company’s ability to pay its interest expenses with its earnings before interest and taxes (EBIT).
• A high interest coverage ratio indicates that the company has a strong ability to pay its interest expenses.