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Category Archives for "Solvency Ratio"

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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Asset Coverage Ratio

This is an in-depth guide on how to calculate Asset Coverage Ratio with through interpretation, analysis, and example. You will learn how to use its formula to evaluate a firm's debt repayment capacity.

Definition - What is Asset Coverage Ratio?

When you’re considering investment in a company, there are a variety of tools available to you to determine whether it is worthwhile or not.

One of these tools is the Asset Coverage Ratio which is the measurement used to determine a firm's ability to pay off or cover its debt given its assets.

This is an especially important ratio in helping you to understand whether or not the company’s assets can cover any debts owed to you and other investors.

If a company is unable to pay its debts, selling off these assets might be the only solution.

When analyzing the ratio, the broad consensus is the higher the coverage ratio, the better as it reflects the ability of the business to fulfill its debt obligations against its assets.

In using this ratio, analysts tend to take the view that for Utilities companies, the asset coverage ratio should be at least 1.5 whereas industrial companies should have a ratio of at least 2.

Anything below these respectively would signal that the company does not have the ability to pay back all of its debts given its assets.

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Interest Expense to Debt Ratio

This is a detailed guide on how to calculate Interest Expense to Debt Ratio with in-depth interpretation, analysis, and example. You will learn how to utilize its formula to examine a company's debt settlement capacity.

Definition - What is Interest Expense to Debt Ratio?

The interest expense to debt ratio is a simple calculation that can help us figure out the rate of interest a business is paying on its total debt.

To understand what must be included in a company's debt, we have to look at the interest expense figure.

Interest expense can be found on the company’s Income Statement. It includes the interest outgo on both the short-term and the long-term debt.

Any borrowings that the firm is paying interest on need to be included in the debt figure.

If the interest expense figure includes interest paid on capital leases, then the corresponding leases have to be included in the debt calculation to ensure an apples to apples comparison.

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