Solvency Ratios include :

(A) Proprietory Ratio
(B) Interest Coverage Ratio
(C) Fixed Assets Turnover
(D) Debt to Capital Employed Ratio
(E) Operating Ratio

Choose the correct answer from the options given below :

(A), (B) and (D) Only

The correct answer is Option (4) - (A), (B) and (D) Only.

Solvency ratios focus on assessing a business's capability to fulfill its long-term debt obligations rather than short-term ones. The persons who have advanced money to the business on long-term basis are interested in safety of their periodic payment of interest as well as the repayment of principal amount at the end of the loan period. Solvency ratios are calculated to determine the ability of the business to service its debt in the long run. The following ratios are normally computed for evaluating solvency of the business. 1. Debt-Equity Ratio; 2. Debt to Capital Employed Ratio; 3. Proprietary Ratio; 4. Total Assets to Debt Ratio; 5. Interest Coverage Ratio.

(A) Proprietory Ratio- Shareholders’, Funds/Capital employed (or net assets)

(B) Interest Coverage Ratio- Net Profit before Interest & Tax / Interest on Long Term Debts

(D) Debt to Capital Employed Ratio- Total Debts / Total Assets

* Fixed Assets Turnover- It is an activity ratio.

* Operating Ratio- It is an profitability ratio.