a measure of a company's solvency, calculated by dividing the sum of net income, interest expense, and income taxe expense by interest expense

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09-12-2022
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a measure of a company's solvency, calculated by dividing the sum of net income, interest expense, and income taxe expense by interest expense

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SanofarAfrin SanofarAfrin · Answer 1 · 2022-12-16T08:57:18+01:00

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.

What is the stability to solvency ratio?

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.

What is revealed by the solvency ratio?

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.

The formula for calculating the solvency ratio.

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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