How to calculate solvency ratio

The solvency of the company represents its ability to timely pay for the commitments and debts in the current time, both short-term and long-term. In the analysis of the solvency assets are treated as secured debt of the company, i.e. the property, after which it will pay its obligations.

Instruction

1. Speaking about the solvency of the organization, meant its liquidity, i.e. the possibility of realization of the company's assets and repayment of debts. It is a broader representation of solvency. In the narrower sense, solvency is whether the company has sufficient funds to repay the current accounts payable in the near future.
2. In the analysis of solvency of the enterprise calculated for three major factor. The first of them is current ratio solvency allows to evaluate the ability to repay your debts and shows how much current assets account for one ruble of short-term liabilities. The normative value for this ratio is 2. The value of the coefficient is below the set standard indicates the presence of the risk of delayed calculation of the enterprise to repay current liabilities.
3. The quick ratio solvency is defined as the ratio of the amount of receivables and short-term investments and cash liabilities of the company. Ie when calculating this coefficient from the value of the assets of the company are deductible reserves. And this is quite logical: they not only have less liquidity but in case of rapid implementation, the sale price may be below their cost of production or acquisition. The estimated value for this ratio is 1.
4. The most stringent criterion of solvency of the enterprise is the ratio of the absolute solvency. It is calculated as the ratio of cash to short-term liabilities of firms and shows what part of the debt can be repaid immediately from available cash. The normative value for this ratio is 0.25.