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Category Archives for "Solvency Ratio"

Current Cash Debt Coverage Ratio

This is a complete guide on how to calculate Current Cash Debt Coverage ratio with in-depth interpretation, example, and analysis. You will learn how to use its formula to evaluate a company’s solvency.

Definition - What is Current Cash Debt Coverage Ratio?

If you want to invest in a stock, then it's critical to assess its state of solvency.

Establishing if that company can pay off its debt or not is just as vital, you can determine that by calculating the current cash debt coverage ratio, or the current cash flow to debt ratio.

That's important no matter if you are an investor or a creditor. Still, as an investor, you are more likely to analyze these numbers, as they interest you most.

Simply put, the current cash debt coverage ratio shows you a company's current operating cash flow (OCF) in relation to its current debt obligations.

In other words, it indicates the firm’s capability of paying its short-term debt in the upcoming years from its cash flow from operations.

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Fixed Assets to Net Worth Ratio

This is a detailed guide on how to calculate Fixed Assets to Net Worth Ratio with in-depth interpretation, example, and analysis. You will learn how to use its formula to evaluate a firm's ability to pay off its long-term debt.

Definition - What is Fixed Assets to Net Worth Ratio?

The fixed assets to net worth ratio, also referred to as the non-current assets to net worth ratio, is a simple calculation that tells us more about the solvency of a company.

It indicates the proportion of the company’s fixed assets which are currently frozen or can’t be used for meeting its debt obligations.

Using this ratio, you can easily find out the extent to which the firm’s assets are illiquid.

To understand the importance of this ratio, you need to first understand what fixed assets are.

Fixed asset is any asset that is not expected to be converted into cash in under 1 year.

Buildings, furniture, machinery, delivery trucks, etc. are some good examples of a company’s fixed assets. Details of fixed assets can be found under the Assets section of the balance sheet.

Having a lower ratio is favorable because this shows that the company you’re considering investing in does not rely too heavily on its fixed assets to meet its current debt obligations.

Conversely, a higher ratio may be a red flag as it indicates that the company’s solvency becomes lower since more funds are tied up with non-current and less-liquid assets.​

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Interest Coverage Ratio

This is an ultimate guide on how to calculate Interest Coverage Ratio with detailed analysis, interpretation, and example. You will learn how to utilize this ratio formula to assess a business solvency.

Definition - What is Interest Coverage Ratio?

The interest coverage ratio, often known as times interest earned ratio, is a solvency ratio that employs a firm’s income statement data to evaluate its ability to pay interest.

This ratio is often used to measure the extent to which operating earnings (earnings before interest & taxes, or EBIT) can cover the company's interest expenses.

Generally speaking, the higher the ratio, the better can the business meet or cover its current interest payments.

In this article, we’ll dive into how to calculate this ratio and how to use it to effectively assess a company’s debt repayment ability.

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Long Term Debt Ratio

This is an in-depth guide on how to calculate Long Term Debt Ratio with detailed interpretation, analysis, and example. You will learn how to utilize its formula to evaluate a firm's long-term debt position.

Definition - What is Long-term Debt Ratio?

The long-term debt ratio, often known as the long-term debt to total asset ratio, essentially measures the total amount of long term debt in relation to the total assets of a company.

This is a fundamental figure you will want to know because balance is key here.

A company that takes on comparatively more debt than it can handle is not in a very good position to meet all of its responsibilities.

You can learn more about how to calculate and interpret it below.​

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