Liquidity and Solvency
Liquidity
Indicators expressing the ability of a company to pay short-term obligations.
| term | description | formula |
| Current ratio | Liquidity ratio. Measures whether a firm has enough resources to pay its debts over the next 12 months | Current Assets ÷ Current liabilities |
| Current Liability Coverage Ratio | Liquidity ratio. Measures the company's ability to pay its current liabilities. It's a better indicator than the current ratio or quick ratio. | (Cash Flow from Operations − Dividend Paid) ÷ Current liabilities |
| Cash ratio | A company's ability to repay its short-term debt with cash or near-cash resources. | Cash and short-term investments ÷ Current Liabilities |
| Free Cash Current Liability Coverage Ratio | Liquidity ratio. Measures the company's ability to pay its current liabilities. Before dividends paid. | Owner Earnings' ÷ Current liabilities |
| Free Cash Current Liability Net Coverage Ratio | Liquidity ratio. Measures the company's ability to pay its current liabilities. After dividends paid. | (Owner Earnings' − Dividend Paid) ÷ Current liabilities |
| Quick ratio | Liquidity ratio. measures a company’s ability to meet its short-term obligations with its most liquid assets. | (Total cash and equivalents + Total receivables) ÷ Current liabilities |
| Complete Quick ratio | Liquidity ratio. measures a company’s ability to meet its short-term obligations with its most liquid assets and cash flow. Before dividends paid. | (Cash and short-term investments + Owner Earnings') ÷ Current liabilities |
| Net Complete Quick ratio | Liquidity ratio. measures a company’s ability to meet its short-term obligations with its most liquid assets and cash flow. After dividends paid. | (Cash and short-term investments + Owner Earnings' − Dividend Paid) ÷ Current liabilities |
| Cash to Current Assets | Determines how liquid a company is by comparing its readily available cash to its current assets. | Cash and short-term investments ÷ Current Assets |
| Cash to Assets | The proportion of a company's assets that are made up for cash and short term investments. | Cash and short-term investments ÷ Total Assets |
| Net Working Capital to Assets | Liquidity ratio that expresses the net current assets or working capital of a company as a percentage of its total assets. One of the most keenly watched financial ratios. | Net Working Capital ÷ Total Assets |
| Days Sales Outstanding | Or Days' Sales in Receivables, is the average number of days it takes to collect a receivable. High growth can be an indicator of revenue inflation. | Accounts receivable.yr avg ÷ Revenue.daily |
| Days Payable Outstanding | A company's average payable period, telling how long it takes a company to pay its invoices from trade creditors. | Accounts Payable.yr avg ÷ Cost of Revenue.daily |
| Flow ratio | Measures whether the company has an asset light business model and manages its working capital well by isolating the bad current assets. | Non-cash current assets ÷ Non-Interest-Bearing Current Liabilities (NIBCL) |
| Months Before Cash Runs Out | How much months are left before the company runs out of cash. | Cash and short-term investments ÷ Burn rate |
| Loans-to-Assets | Measures the total loans outstanding as a percentage of total assets. The higher this ratio indicates a bank is loaned up and its liquidity is low. The higher the ratio, the more risky a bank may be to higher defaults. | Net loans ÷ Total Assets |
| Loan-deposit ratio | Ratio between the banks total loans and total deposits. If the ratio is lower than one, the bank relied on its own deposits to make loans to its customers, without any outside borrowing. If the ratio is greater than one, the bank borrowed money which it reloaned at higher rates, rather than relying entirely on its own deposits. | Net loans ÷ Deposits |
Solvency
Indicators expressing the ability of a company to meet its long-term financial obligations.
| term | description | formula |
|---|---|---|
| Debt ratio | Solvency Ratio. The percentage of a company's assets that are provided via debt | Total liabilities ÷ Total Assets |
| Long term debt ratio | The Long term debt to Total asset ratio is an indication of what portion of a company's total assets is financed from long term debt. The value varies from industry and company. | Long-term liabilities ÷ Total Assets |
| Total Debt/ Assets | A measure of the extent to which a company's assets are financed by debt. | Total Debt and Lease ÷ Total Assets |
| Net Debt/ Assets | A measure of the extent to which a company's assets are financed by debt. | Net Debt ÷ Total Assets |
| Total debt / Equity | Solvency Ratio. A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets. | Total debt ÷ Shareholders' Equity |
| Liabilities / Equity | Solvency Ratio. A measure of a company's financial leverage calculated by dividing its total debt by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets. | Total liabilities ÷ Shareholders' Equity |
| Long-term Debt/ Equity ratio | Solvency Ratio. Calculated by taking the company's long-term debt and dividing it by the book value. The greater a company's leverage, the higher the ratio. Generally, companies with higher ratios are thought to be more risky. | Long-term debt and Capital lease obligations ÷ Shareholders' Equity |
| Net Debt / Equity | Solvency Ratio. A measure of a company's financial leverage calculated by dividing its net debt by stockholders' equity. It indicates what proportion of equity and net debt the company is using to finance its assets. | Net Debt ÷ Shareholders' Equity |
| Debt / Tangible Book value | Solvency Ratio. A measure of a company's financial leverage calculated by dividing its total liabilities by tangible book value. | Total liabilities ÷ Tangible Book value |
| Net Debt to Tangible Equity | Solvency Ratio. The gearing ratio shows how encumbered a company is with debt. | Net Debt ÷ Tangible Book value |
| Equity ratio | Solvency Ratio. A financial ratio indicating the relative proportion of equity used to finance a company's assets. | Equity ÷ Total Assets |
| Equity multiplier | Solvency Ratio. A measure of financial leverage. | Total Assets ÷ Equity |
| Tier 1 Capital ratio | The part of a financial institution's capital that comprises equity and disclosed reserves. | Core Capital ÷ 0.8 × Non-cash assets |
| LT debt / Working capital | Helpful in determining the degree of reliance by a firm on long-term debt to finance its day-to-day operations. | Long-term debt and Capital lease obligations ÷ Net Working Capital |
| Net Debt / EBITDA | indicates how many years of EBITDA would be necessary in order to pay back all the debt | Net Debt ÷ EBITDA |
| Net Debt / FCFF | indicates how many years of Free Cash Flow would be necessary in order to pay back all the debt | Net Debt ÷ Free Cash Flow to the Firm |
| Cash to Debt | Measures the financial strength of a company. | Cash and short term investments ÷ Total debt |
| Cash Flow Coverage Ratio | A type of debt coverage ratio, and is an estimate of the amount of time it would take a company to repay all its liabilities if it devoted all of its cash flow to debt repayment. | Cash Flow from Operations ÷ Total liabilities |
| Free Cash Flow / Long Term Debt | This ratio provides an indication of a company's ability to cover long term debt with its yearly free cash flow. The higher the percentage ratio, the better the company's ability to carry its debt. | Free Cash Flow to the Firm ÷ Long-term debt and Capital lease obligations |
| Debt leverage ratio | measures a company's ability to repay debt obligations from annualized EBITDA. | Total liabilities.yr avg ÷ EBITDA |
| Adjusted Interest Coverage Ratio | Liquidity ratio. The lower the ratio, the more the company is burdened by debt expense. | Adjusted Free Cash Flow to the Firm ÷ Interest expense |
| Interest Coverage ratio | Liquidity ratio. The lower the ratio, the more the company is burdened by debt expense. | EBIT ÷ Interest expense |
| Interest expense to Debt ratio | Estimates the rate of interest a company is paying on their outstanding debt. | Interest expense ÷ Total debt |
| External Financing Ratio | Shows if a company is able to finance investments from cash the business generated or if it needed external money to meet its investment needs. | (Total assets.diff − Cash Flow from Operations) ÷ Total assets |
| Enterprise Value to Market Cap | Offers a quick way to compare capital structures across different companies. | Enterprise Value ÷ Market cap |