Enter the net income, depreciation, and total liabilities into the calculator to determine the solvency ratio of the business.
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Solvency Ratio Formula
The following equation can be used to calculate the solvency ratio.
SR = (NI + D) / L
- Where SR is the solvency ratio
- NI is the net income ($)
- D is the depreciation ($)
- L is the total liabilities ($)
Solvency Ratio Definition
A solvency ratio is defined as the ratio of net income plus depreciation to the total liabilities. It’s one measure of a business’s ability to pay the debt.
Solvency Ratio Example
How to calculate a solvency ratio?
- First, determine the net income.
Calculate the total net income of the company.
- Next, determine the depreciation.
Calculate the value of the depreciation of the assets of the company.
- Next, determine the total liabilities.
Calculate the value of all liabilities of the business.
- Finally, calculate the solvency ratio.
Use the equation above to calculate the solvency ratio.
The solvency ratio is a measure of how solvent a company is. Solvency is the ability of a companies ability to pay its debt. The higher the ratio, the better the solvency of the company and the more income to liabilities to the company has.
The ratio is calculated using the sum of the net income and depreciation of assets and dividing that value by the total liabilities. The higher the ratio the better the standing of the company.