solvency ratios

Measures of a firm's ability to meet its long-term debt obligations. Solvency ratios help investors and analysts understand if a company's current available cash flow is sufficient to meet its long-term responsibilities. A poor solvency ratio could be an indication that a firm may default on its debts and loans, making it a poor investment choice. While solvency ratios measure long-term ability to pay debts, liquidity ratios measure short-term ability to pay debts; combined, they can give a picture of a company's overall financial health. The most common solvency ratios include the debt-to-assets ratio, the debt-to-capital ratio, the debt-to-equity ratio and interest coverage ratio.