Solvency Ratio

(redirected from Solvency Ratios)

Solvency Ratio

A measure of a company's ability to service debts, expressed as a percentage. It is calculating by adding the company's post-tax net profit and depreciation, and dividing the sum by the quantity of long-term and short-term liabilities; the resulting amount is expressed as a percentage. A high solvency ratio indicates a healthy company, while a low ratio indicates the opposite. A low solvency ratio further indicates likelihood of default. Different industries have different standards as to what qualifies as an acceptable solvency ratio, but, in general, a ratio of 20% or higher is considered healthy. Potential lenders may take the solvency ratio into account when considering making further loans.
References in periodicals archive ?
This loan will further consolidate the bank's own funds, strengthen its solvency ratios and cash flow and allow it to boost the economy.
But downside risks for the sector have increased, and from 2016 banks will also have to meet additional Basel III capital buffers that will underpin quite healthy solvency ratios.
Liquidity ratios analyze the company's capacity to pay off its short-term debt obligations, whereas solvency ratios examine the company's ability to meet its long-term liabilities.
Although the Solvency II regime has yet to be finalised, Moody's Investor Service has outlined its expectation that solvency ratios will ultimately exhibit a more complex volatility under Solvency II than under Solvency I, as both the available capital and the capital requirements of the solvency ratio will change with market conditions.
They argued that "the risk covered by pension funds is a long-term risk and there is consequently no need to impose solvency ratios adopted for short-term risks, like those covered by insurance".
He described Bahrain's banks' performance as "outstanding" compared to other Arab banks, thanks to abundance of cash liquidity and high financial solvency ratios, reports our sister paper Akhbar Al Khaleej.
It further added that even though capital reserves were at 200 percent of the required minimum, firms' solvency ratios have started to decrease slightly.
The sale was conducted through a secondary offering and is part of Santander's measures to bring its solvency ratios in line with tougher capital standards.
The new standards give more weight to possible appraisal losses on major insurers' stockholdings, which is expected to lower their solvency ratios 40-50 percent on average.
Relatively strong market returns and a slight upward move in interest rates contributed to an increase in average funding and solvency ratios for corporate and public pension funds last year, and drove endowment assets' growth rate to 7.
UK life insurance companies have suffered a torrid 12 months as volatile stock markets slash the value of investment funds and hammer solvency ratios.
As a result, solvency ratios would be vulnerable to falls in stock prices because unrealized losses on unlisted domestic stocks and foreign stocks would be taken into account.