Solvency refers to the ability of enterprises or individuals to repay their debts on time when they are due. The solvency index is an important index system to measure the solvency of enterprises or individuals. This paper will introduce several commonly used solvency indicators to help readers better understand and evaluate solvency.
I. Current ratio
Current ratio refers to the ratio between current assets and current liabilities of an enterprise, which is used to measure the short-term solvency of an enterprise. The higher the current ratio, the stronger the short-term solvency of the enterprise. Generally speaking, enterprises with a current ratio of more than 2 times have better solvency.
Second, the quick ratio.
Quick ratio refers to the ratio of quick assets to current liabilities of an enterprise, and quick assets refer to current assets other than inventory. Quick ratio pays more attention to the assets that the enterprise can really realize quickly, so it can better reflect the short-term solvency of the enterprise. The higher the quick ratio, the stronger the short-term solvency of the enterprise.
Third, the interest guarantee multiple
Interest guarantee multiple refers to the ratio of pre-tax profit to interest expenditure, which is used to measure the ability of enterprises to pay interest. The higher the interest guarantee multiple, the stronger the enterprise's ability to pay interest. Generally speaking, enterprises with interest guarantee multiples of more than 2 times have better solvency.
Fourth, the asset-liability ratio.
Asset-liability ratio refers to the ratio between total liabilities and total assets of an enterprise, which is used to measure the ratio of debt scale to asset scale. The lower the asset-liability ratio, the smaller the debt scale and the stronger the solvency. Generally speaking, enterprises with asset-liability ratio below 70% have better solvency.
The solvency index is an important tool to evaluate the solvency of enterprises or individuals. Current ratio, quick ratio, interest guarantee multiple and asset-liability ratio are commonly used indicators of solvency. Through the analysis of these indicators, we can better understand and evaluate the solvency. For enterprises, maintaining a healthy solvency is the basis to ensure the stable development of operations, while for individuals, repaying debts is also the key to maintaining financial stability. We should pay close attention to solvency indicators and make timely adjustments and improvements to ensure our own economic security and sustainable development.