What is the 'Solvency Ratio'
A key metric used to measure an enterprise’s ability to meet its debt and other obligations. The solvency ratio indicates whether a company’s cash flow is sufficient to meet its shortterm and longterm liabilities. The lower a company's solvency ratio, the greater the probability that it will default on its debt obligations.
The measure is usually calculated as follows:
BREAKING DOWN 'Solvency Ratio'
Solvency ratio, with regard to an insurance company, means the size of its capital relative to the premiums written, and measures the risk an insurer faces of claims it cannot cover.
The solvency ratio is only one of the metrics used to determine whether a company can stay solvent. Other solvency ratios include debt to equity, total debt to total assets, and interest coverage ratios.
However, the solvency ratio is a comprehensive measure of solvency, as it measures cash flow – rather than net income – by including depreciation to assess a company’s capacity to stay afloat. It measures this cash flow capacity in relation to all liabilities, rather than only debt. Apart from debt and borrowings, other liabilities include shortterm ones such as accounts payable and longterm ones such as capital lease and pension plan obligations.
Measuring cash flow rather than net income is a better determinant of solvency, especially for companies that incur large amounts of depreciation for their assets but have low levels of actual profitability. Similarly, assessing a company’s ability to meet all its obligations – rather than debt alone – provides a more accurate picture of solvency. A company may have a low debt amount, but if its cash management practices are poor and accounts payable is surging as a result, its solvency position may not be as solid as would be indicated by measures that include only debt.
A company’s solvency ratio should also be compared with its competitors in the same industry rather than viewed in isolation. For example, companies in debtheavy industries like utilities and pipelines may have lower solvency ratios than those in sectors such as technology. To make an applestoapples comparison, the solvency ratio should be compared for all utility companies, for example, to get a true picture of relative solvency.

Solvency
The ability of a company to meet its longterm financial obligations. ... 
Solvency Capital Requirement
The amount of funds that insurance and reinsurance undertakings ... 
Free Asset Ratio  FAR
A metric used to determine whether an insurance company has sufficient ... 
Keepwell Agreement
A contract between a parent company and its subsidiary to maintain ... 
Leverage Ratio
Any ratio used to calculate the financial leverage of a company ... 
Debt Ratio
A financial ratio that measures the extent of a company’s or ...

Investing Basics
Solvency Ratio
The Solvency Ratio is one of many ratios used to measure a company's ability to pay its debts. Generally, the higher the ratio the better. 
Fundamental Analysis
Financial Analysis: Solvency Vs. Liquidity Ratios
Solvency and liquidity are equally important for a company's financial health. A number of financial ratios are used to measure a company’s liquidity and solvency, and an investor should use ... 
Fundamental Analysis
Analyze Investments Quickly With Ratios
There are four categories of financial ratios: profitability, liquidity, solvency and valuation. 
Investing Basics
Analyze Investments Quickly With Ratios
Make informed decisions about your investments with these easy equations. 
Active Trading Fundamentals
Analyzing Oracle's Debt Ratios in 2016 (ORCL, SAP)
Learn how the debt ratio, debttoequity ratio and debttocapital ratio are used to evaluate Oracle Corp.'s liabilities, equity and assets. 
Investing
Ratio Analysis
Ratio analysis is the use of quantitative analysis of financial information in a company’s financial statements. The analysis is done by comparing line items in a company’s financial ... 
Investing Basics
Liquidity Vs. Solvency
Learn about the differences between these two words and how each one is used in the stock market. 
Investing
Total Debt to Total Assets
Total Debt to total assets, also called the debt ratio, is an accounting measurement that shows how much of a company’s assets are funded by borrowing. In business, borrowing is also called leverage. 
Technical Indicators
Key Financial Ratios to Analyze Tech Companies
Understand the technology industry and the companies that operate in it. Learn about the key financial ratios used to analyze tech companies. 
Trading Strategies
Financial Ratios to Spot Companies Headed for Bankruptcy
Obtain information about specific financial ratios investors should monitor to get early warnings about companies potentially headed for bankruptcy.

Are solvency ratios more concerned with the shortterm or the longterm?
Learn what solvency is, how to use ratios to determine a company's solvency, and why solvency ratios are concerned with the ... Read Answer >> 
How do unfunded capital expenditures and distributions affect the fixed charge coverage ...
Learn about the most common solvency ratio and what it measures. Understand two other liquidity ratios that are commonly ... Read Answer >> 
What can I tell about a company by looking at its solvency ratios?
Learn about solvency ratios, how to calculate two solvency ratios and what solvency ratios indicate about a company when ... Read Answer >> 
What is the difference the operating cash flow ratio and solvency ratio?
Learn about the operating cash flow ratio and the solvency ratio, what they measure, and the difference between the operating ... Read Answer >> 
What are the differences between solvency ratios and liquidity ratios?
Learn about liquidity ratios and solvency ratios, some examples of these ratios and the main difference between them. Read Answer >> 
What is the difference between the cash ratio and the solvency ratio?
Understand the difference between the cash ratio and the solvency ratio. Learn why a company should be focused on both ratios ... Read Answer >>