How Do You Calculate Long-Term Solvency Measure Ratios?
Financial ratios are used to analyze companies. As financial ratios are percentages, companies of different size can be accurately assessed and compared. A company’s long-term solvency depends in part on its ability to pay its long-term bills. Long-term solvency ratios are also called financial leverage ratios and leverage ratios. Long-term solvency ratios measure how a company can meet its long-term financial leverage obligations. Long-term solvency ratios include the total debt ratio, the debt-equity ratio, the equity multiplier, the times interest earned ratio, and the cash coverage ratio. This article demonstrates through example how to calculate long-term solvency ratios with the following given information: total assets………..$10,000 total equity…………$8,000 total debt…………..$2,500 EBIT………………..$5,000 interest…………….$1,200 depreciation…………$1,800 Select the long-term solvency ratios that are going to be calculated. Total debt ratio = (t
