What is the Solvency Ratio? Business Debt & Solvency

Arabian Petroleum Ltd. Ipo18 Apr, 2024Business

Are you curious about the financial health of a company? Understanding the solvency ratio is key. This metric evaluates a company's ability to meet its long-term financial obligations. Let's dive into its components and why they matter. Debt-to-Equity Ratio: This ratio compares a company's debt to its equity. A high ratio indicates higher financial risk, as it suggests the company relies heavily on borrowing to finance its operations. Conversely, a low ratio signifies financial stability, indicating that the company relies more on equity financing.