{"id":383,"date":"2024-09-06T16:49:18","date_gmt":"2024-09-06T16:49:18","guid":{"rendered":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/chapter\/introduction-to-measures-of-solvency\/"},"modified":"2024-09-06T16:49:18","modified_gmt":"2024-09-06T16:49:18","slug":"introduction-to-measures-of-solvency","status":"publish","type":"chapter","link":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/chapter\/introduction-to-measures-of-solvency\/","title":{"raw":"Introduction to Measures of Solvency","rendered":"Introduction to Measures of Solvency"},"content":{"raw":"\n<h2>What you\u2019ll learn to do:&nbsp; Calculate ratios that analyze a company\u2019s long-term debt-paying ability<\/h2>\n<img class=\"alignright wp-image-5278 \" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/05044934\/entrepreneur-2411763_1920-1024x678.jpg\" alt=\"A man working on a tablet with the projection of digital line graphs in the background.\" width=\"397\" height=\"263\">\n\nSolvency analysis evaluates a company\u2019s future financial stability by looking at its ability to pay its long-term debts.\n\nBoth investors and creditors are interested in the solvency of a company. Investors want to make sure the company is in a strong financial position and can continue to grow, generate profits, distribute dividends, and provide a return on investment. Creditors are concerned with being repaid and look to see that a company can generate sufficient revenues to cover both short and long-term obligations.\n\nIn this section, we\u2019ll look at three common indicators of solvency:\n<ul>\n \t<li>Debt to Equity<\/li>\n \t<li>Debt to Assets (and Equity to Assets)<\/li>\n \t<li>Times Interest Earned<\/li>\n<\/ul>\nThese ratios that measure \u201cleverage\u201d are also called \u201cgearing\u201d ratios.\n","rendered":"<h2>What you\u2019ll learn to do:&nbsp; Calculate ratios that analyze a company\u2019s long-term debt-paying ability<\/h2>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignright wp-image-5278\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5107\/2020\/10\/05044934\/entrepreneur-2411763_1920-1024x678.jpg\" alt=\"A man working on a tablet with the projection of digital line graphs in the background.\" width=\"397\" height=\"263\" \/><\/p>\n<p>Solvency analysis evaluates a company\u2019s future financial stability by looking at its ability to pay its long-term debts.<\/p>\n<p>Both investors and creditors are interested in the solvency of a company. Investors want to make sure the company is in a strong financial position and can continue to grow, generate profits, distribute dividends, and provide a return on investment. Creditors are concerned with being repaid and look to see that a company can generate sufficient revenues to cover both short and long-term obligations.<\/p>\n<p>In this section, we\u2019ll look at three common indicators of solvency:<\/p>\n<ul>\n<li>Debt to Equity<\/li>\n<li>Debt to Assets (and Equity to Assets)<\/li>\n<li>Times Interest Earned<\/li>\n<\/ul>\n<p>These ratios that measure \u201cleverage\u201d are also called \u201cgearing\u201d ratios.<\/p>\n","protected":false},"author":6,"menu_order":21,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Introduction to Measures of Solvency\",\"author\":\"Joseph Cooke\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"cc\",\"description\":\"Principles of Financial Accounting\",\"author\":\"Christine Jonick\",\"organization\":\"\",\"url\":\"https:\/\/web.ung.edu\/media\/university-press\/Principles-of-Financial-Accounting.pdf?t=1601063299615\",\"project\":\"\",\"license\":\"cc-by-sa\",\"license_terms\":\"\"},{\"type\":\"cc\",\"description\":\"\",\"author\":\"Gerd Altmann\",\"organization\":\"\",\"url\":\"https:\/\/pixabay.com\/illustrations\/entrepreneur-start-start-up-chart-2411763\/\",\"project\":\"\",\"license\":\"cc0\",\"license_terms\":\"https:\/\/pixabay.com\/service\/terms\/#license\"}]","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"part":362,"module-header":"","content_attributions":[{"type":"original","description":"Introduction to Measures of Solvency","author":"Joseph Cooke","organization":"Lumen Learning","url":"","project":"","license":"cc-by","license_terms":""},{"type":"cc","description":"Principles of Financial Accounting","author":"Christine Jonick","organization":"","url":"https:\/\/web.ung.edu\/media\/university-press\/Principles-of-Financial-Accounting.pdf?t=1601063299615","project":"","license":"cc-by-sa","license_terms":""},{"type":"cc","description":"","author":"Gerd Altmann","organization":"","url":"https:\/\/pixabay.com\/illustrations\/entrepreneur-start-start-up-chart-2411763\/","project":"","license":"cc0","license_terms":"https:\/\/pixabay.com\/service\/terms\/#license"}],"internal_book_links":[],"video_content":null,"cc_video_embed_content":{"cc_scripts":"","media_targets":[]},"try_it_collection":null,"_links":{"self":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/383"}],"collection":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/users\/6"}],"version-history":[{"count":0,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/383\/revisions"}],"part":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/parts\/362"}],"metadata":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/383\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/media?parent=383"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapter-type?post=383"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/contributor?post=383"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/license?post=383"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}