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Different countries use different methodologies to calculate the solvency ratio, and have different requirements. For example, in India insurers are required to maintain a minimum ratio of 1.5. [1] For pension plans, the solvency ratio is the ratio of pension plan assets to liabilities (the pensions to be paid).
Solvency, in finance or business, is the degree to which the current assets of an individual or entity exceed the current liabilities of that individual or entity. [1] Solvency can also be described as the ability of a corporation to meet its long-term fixed expenses and to accomplish long-term expansion and growth. [ 2 ]
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Financial analysts can also use percentage analysis which involves reducing a series of figures as a percentage of some base amount. [1] For example, a group of items can be expressed as a percentage of net income. When proportionate changes in the same figure over a given time period expressed as a percentage is known as horizontal analysis. [2]
Solvency and liquidity are related, but very distinct, terms that are valuable to investors. When a company is solvent, it means the company has the ability to pay its debts and liabilities over ...
A financial ratio or accounting ratio states the relative magnitude of two selected numerical values taken from an enterprise's financial statements. Often used in accounting , there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization.
An entity's debt-to-equity funding is sometimes expressed as a ratio. For example, a gearing ratio of 1.5:1 means that for every $1 of equity the entity has $1.5 of debt. A high gearing ratio can create problems for: creditors, which bear the solvency risk of the company, and; revenue authorities, which are concerned about excessive interest ...
External debt measures an economy's obligations to make future payments and, therefore, is an indicator of a country's vulnerability to solvency and liquidity problems. [ 1 ] : xi–xii Another useful indicator is the net external debt position, which equals gross external debt minus external assets in the form of debt instruments.