{"id":4146,"date":"2020-10-26T16:30:51","date_gmt":"2020-10-26T16:30:51","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-financialaccounting\/?post_type=chapter&#038;p=4146"},"modified":"2020-11-16T16:52:54","modified_gmt":"2020-11-16T16:52:54","slug":"introduction-to-measures-of-solvency","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/chapter\/introduction-to-measures-of-solvency\/","title":{"raw":"Introduction to Measures of Solvency","rendered":"Introduction to Measures of Solvency"},"content":{"raw":"<h2>What you\u2019ll learn to do:\u00a0 Calculate ratios that analyze a company\u2019s long-term debt-paying ability<\/h2>\r\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\" \/>\r\n\r\nSolvency analysis evaluates a company\u2019s future financial stability by looking at its ability to pay its long-term debts.\r\n\r\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.\r\n\r\nIn this section, we\u2019ll look at three common indicators of solvency:\r\n<ul>\r\n \t<li>Debt to Equity<\/li>\r\n \t<li>Debt to Assets (and Equity to Assets)<\/li>\r\n \t<li>Times Interest Earned<\/li>\r\n<\/ul>\r\nThese ratios that measure \u201cleverage\u201d are also called \u201cgearing\u201d ratios.","rendered":"<h2>What you\u2019ll learn to do:\u00a0 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\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-4146\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Introduction to Measures of Solvency. <strong>Authored by<\/strong>: Joseph Cooke. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Shared previously<\/div><ul class=\"citation-list\"><li>Principles of Financial Accounting. <strong>Authored by<\/strong>: Christine Jonick. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/web.ung.edu\/media\/university-press\/Principles-of-Financial-Accounting.pdf?t=1601063299615\">https:\/\/web.ung.edu\/media\/university-press\/Principles-of-Financial-Accounting.pdf?t=1601063299615<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by-sa\/4.0\/\">CC BY-SA: Attribution-ShareAlike<\/a><\/em><\/li><li><strong>Authored by<\/strong>: Gerd Altmann. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/pixabay.com\/illustrations\/entrepreneur-start-start-up-chart-2411763\/\">https:\/\/pixabay.com\/illustrations\/entrepreneur-start-start-up-chart-2411763\/<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/about\/cc0\">CC0: No Rights Reserved<\/a><\/em>. <strong>License Terms<\/strong>: https:\/\/pixabay.com\/service\/terms\/#license<\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":90270,"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 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