Solvency ratios (long term), Accounting Basics

Solvency Ratios (Long Term): These Ratios measure the long term financial provision of the firm. Creditors and Bankers are mainly interested in liquidity. But shareholders, and financial institutions are concerned with the long-term financial prospects.   A variety of Solvency Ratios are:

(i)  Debt-Equity Ratio:  This ratio measures the relationship between borrowed Capital to own Capital.  There are many variations to this Ratio.  But, the most

Popular ones are:  Debt      (or) Outsider's funds         (Ideal Ratio = 1:1)

                         Equity         Share holders' funds

(ii) Proprietory Ratio:            Share holders' Funds

                                           Total Assets

(iii) Assets to Proprietory Ratios:

(a)  Fixed Assets to Proprietor's Fund Ratio =

Fixed Assets after Depreciation         (Ideal Ratio = 60% to 65%)

       Shareholders' Funds

(b) Current Assets to Proprietor's Fund Ratio = Current Assets

                                                             Shareholders' Funds

(iv)   Interest Coverage Ratio:   This ratio measures the ability of the firm in meeting its interest charges and thus gives the measure of protection to creditors for payment of interest.  Interest coverage ratio less than 2.0 suggests a risky situation

Interest Coverage Ratio = Profit before interest and Taxes

                                             Interest Expense

Posted Date: 10/15/2012 6:02:15 AM | Location : United States







Related Discussions:- Solvency ratios (long term), Assignment Help, Ask Question on Solvency ratios (long term), Get Answer, Expert's Help, Solvency ratios (long term) Discussions

Write discussion on Solvency ratios (long term)
Your posts are moderated
Related Questions
HOW TO DO DOUBLE ENTRY QUESTIONS

Mission statement for PCAOB and AICPA and how it contributed to GAAP 2-3 pages APA style

Q. Example of T-accounts? Suppose that the last day of December 2010 falls on a Monday this expense account doesn't show salaries earned by employees for the last day of the mo

Q. What do you eman by Purchases account? In periodic inventory procedure a merchandising company uses the Purchases account to record the cost of merchandise bought for resale

Richard Hamilton has a fast - food franchise and must pay a franchise fee of $35000 plus 3% of gross sales. In terms of cost behavior, the total cost is a: a) variable cost b

A bank statement showed an overdraft of $750. A cheque issued in payment of rent for $570 had not been presented, and a cheque for $624 received was omitted from the statement. The

A of Surat consigned goods to B of Jaipur to be sold at or above invoice price. B is entitled to get a commission of 8% on sales at invoice price plus 25% of any surplus price real

Uses of the Profit and Loss Account 1) The key utilize is to monitor and calculate profit. This suppose that the informat ion recording is correct. Significant harms can arise

Q. What is Accounts Receivable account? Envisage a company with an Accounts Receivable account and an Accounts Payable account in its general ledger as well as no Accounts Rece

On December 31, 2013, a company issues bonds with a par value of $600,000. The bonds mature in 10 years, and pay 6% annual interest, payable each June 30 and December 31. The bon