Solvency Ratio Calculator

Formula

The formula to calculate the Solvency Ratio (SR) is:

\[ \text{SR} = \frac{\text{NI} + \text{D}}{\text{L}} \]

Where:

$ \text{SR} $ is the Solvency Ratio
$ \text{NI} $ is the Net Income ($)
$ \text{D} $ is the Depreciation ($)
$ \text{L} $ is the Total Liabilities ($)

What is a Solvency Ratio?

A solvency ratio is defined as the ratio of net income plus depreciation to total liabilities. It is a measure of a business's ability to meet its long-term debt obligations. A higher solvency ratio indicates a stronger ability to sustain operations and pay debts, reflecting better financial health.

Example Calculation

Let's assume the following values:

Net Income (NI) = $50,000
Depreciation (D) = $10,000
Total Liabilities (L) = $100,000

Using the formula to calculate the Solvency Ratio (SR):

\[ \text{SR} = \frac{50,000 + 10,000}{100,000} = \frac{60,000}{100,000} = 0.60 \]

The Solvency Ratio (SR) is 0.60, or 60%.