Solvency Ratios Solvency ratios help managers evaluate a company’s ability to pay long term debt. Solvency ratios are important because they provide lenders and owners information about a business’s ability to withstand operating losses incurred by the business. These ratios are: Solvency Ratio Debt to Equity Ratio Debt to Assets Ratio Operating Cash Flows to Total Liabilities Ratio Times Interest Earned Ratio

1. Submitted By :- Submitted To :-
Pulkit Bordia Mrs. Divya Agarwal
Rahul Sharma
Arpit Sharma
Narayan Singh
Sandeep Kumar

2. Long-Term Solvency Ratio;
Infosys

3. Ratio Analysis @ Glance
“Ratio analysis is a study of relationship among
various financial factors in a business.”
Classification of Ratios :
• Liquidity Ratios
• Solvency Ratios
• Activity or Turnover Ratios
• Profitability or Income Ratios

4. Solvency Ratio
“Solvency Ratios convey an enterprise’s ability to
meet its long-term obligations.”
• Debt-Equity Ratio = Debt/Equity
• Total assets to Debt Ratio = Total Assets/ Debt
• Proprietary Ratio = Equity/Total Assets

5. Debt-Equity Ratio (2013)
Debt-Equity Ratio = Debt/Equity
Debt= 238
Equity= (Share capital + Reserves and Surplus)
= 286 + 37,708
=37,994
Debt- Equity ratio= 238/37,994 = 0.0063:1
All fig. are in crores

6. Debt-Equity Ratio (2014)
Debt-Equity Ratio = Debt/Equity
Debt= 405
Equity= (Share capital + Reserves and Surplus)
= 286 +44,244
= 44,530
Debt- Equity ratio= 405/44,530 = 0.0091:1
All fig. are in crores

7. Total Assets to Debt Ratio (2013)
Total assets to Debt Ratio = Total Assets/ Debt
Total Debt = 238
Total Assets = 46,331
Total assets to Debt Ratio = 46,331/238 = 194.66:1
All fig. are in crores

8. Total Assets to Debt Ratio (2014)
Total assets to Debt Ratio = Total Assets/ Debt
Total Debt = 405
Total Assets = 56,966
Total assets to Debt Ratio = 56,966/405 = 140.66:1
All fig. are in crores

9. Proprietary Ratio (2013)
Proprietary Ratio = Equity/Total Assets
Equity = ( Share capital + Reserves & surplus)
= 286 +37,708
= 37,994
Total Assets = 46,331
Proprietary Ratio = 37,994/46,331 = 0.82 or 82%
All fig. are in crores

10. Proprietary Ratio (2014)
Proprietary Ratio = Equity/Total Assets
Equity= (Share capital + Reserves and Surplus)
= 286 +44,244
= 44,530
Total Assets = 56,966
Proprietary Ratio = 44,530/56,966 = 0.78 or 78%
All fig. are in crores

12. • Low Debt-Equity Ratio implies the use of more
equity than debt which means a larger safety margin
for creditors since owner’s equity is considered as a
margin of safety by creditors and vice versa.
Year Debt- Equity Ratio
2013 0.0063:1
2014 0.0091:1

13. • A Higher Total Assets to Debt Ratio represents
higher securities to lenders for extending long-term
loans to the business.
Year Total Assets to Debt Ratio
2013 194.66:1
2014 140.66:1

14. • A High Proprietary Ratio indicates adequate safety
for creditors. But a very high ratio indicates improper
mix of proprietor’s funds results in lower return on
investment.
Year Proprietary Ratio
2013 0.82 or 82%
2014 0.78 or 78%