Interpretations of long term solvency or liquidity ratio''s, Financial Management

Long Term Solvency or Liquidity Ratio's

 

DE:          The Debt Equity ratio exhibits the relation that exists between debt and proprietor's fund and is considered a very important tool for the analysis of the financial solvency of any concern. It takes into account all debts of all maturities to the proprietary fund.

 

LTDE:      The Long Term Debt Equity ratio exhibits the relation that exists between long-term debt and proprietor's fund and is also considered a very important tool for the analysis of the financial solvency of any concern. It indicates the relative proportion of long-term debt to pro proprietary fund. Higher the ratio greater is the risk to the creditors and on the other hand low ratio represents the high margin of safety to the creditors. High ratio also indicates too much dependence over long-term debt and low ratio is the symptom of much conservatism to the owner's fund.

 

TIE:          The Times Interest Earned ratio or Interest Coverage ratio is calculated by earnings before interest and tax to fixed interest charges. It indicates the number of times the fixed interest charges are covered by the company's net profit. Higher coverage proves greater profitability, better management and ensures the creditors for regular payment of interest. Lower coverage, on the other hand, is a sign of danger.

 

 

Posted Date: 7/26/2012 4:01:06 AM | Location : United States







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