This document analyzes various solvency ratios for a company over three years from 2012-2014. It defines solvency ratios as ratios that establish relationships between current assets and current liabilities to measure a company's ability to meet its short-term obligations. The document then examines key solvency ratios for the company, including the current ratio, quick ratio, total debt ratio, debt equity ratio, and interest coverage ratio over the three year period. For each ratio, it provides the specific calculations and interprets what the ratios indicate about the company's solvency and use of debt financing.

1. Solvency Ratios Analysis
Presented by :
Abhishek kumar

2. Objective of Solvency Ratios
• Solvency means the company's ability to stay afloat
i.e. the ability of a firm to meet its obligations.
• These ratios establish relationships between cash
and other current assets to current obligations and
provide a quick measure of liquidity.
• These ratios interest short term creditors such as
bankers and suppliers of raw materials.

3. Major Solvency Ratios
• Current Ratio
• Quick Ratio
• Total Debt Ratio
• Debt equity Ratio
• Interest coverage ratio

4. Current Ratio
Particulars 2014 (lakh) 2013 (lakh) 2012 (lakh)
Current assets 67180.16 79303.71 72368.09
Current liabilities 86326.62 78144.10 66338.61
Ratios 0.78 1.01 1.09
• Measure of a firm’s short term solvency
• A ratio more than 1 means the firm has more current assets
than current claims i.e. the higher the ratio the more is the
company’s ability to meet its obligations.

5. Quick Ratio
Particulars 2014 (lakh) 2013 (lakh) 2012 (lakh)
Quick assets
(Current assets – inventory)
44605.89 60773.88 63641.52
Current liabilities 86326.62 78144.10 66338.61
Ratios 0.52 0.78 0.96
• It establishes a relation between the quick or liquid assets and
current liabilities.
• A company with a high value of quick ratio can suffer from
shortage of funds if it has slow paying.

6. Total Debt Ratio
Particulars 2014 (lakh) 2013 (lakh) 2012 (lakh)
Total Debt 0 0 0
Capital employed 59987.86 48959.14 43538.89
Ratios 0 0 0
• Used to analyze long term solvency of a firm.
• The lower the ratio the lower is the probability of investment from
financial institutions.
• Here the firm is completely self financed through owners

7. Debt Equity Ratio
Particulars 2014 (lakh) 2013 (lakh) 2012 (lakh)
Total Debt 0 0 0
Share holder’s fund 59987.86 78959.14 43592.89
Ratios 0 0 0
• If the ratio is increasing, the company is being financed by creditors
rather than from its own financial sources which may be a dangerous
trend.
• Here the company is not being funded by creditors but is working
on owner’s funds.

8. Interest Coverage Ratio
Particulars 2014 (lakh) 2013 (lakh) 2012 (lakh)
EBIT 74133.09 70673.28 62770.21
Interest 0 0 0
Ratios 0 0 0
• This ratio indicates the company’s ability to meet interest.
• A higher ratio is desirable but a very high ratio indicates that
the firm is very conservative in using debt.
•A very low ratio means excessive use of debt.

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