Solvency Ratio Calculator

Solvency Ratio Formula

The solvency ratio assesses a company's ability to meet its long-term obligations:

Solvency Ratio = (Net Income + Non-cash Expenses) / Total Debt

Where:

• Net Income: The company's profit after all expenses and taxes.
• Non-cash Expenses: Expenses that don't involve cash outflows, like depreciation.
• Total Debt: The sum of all short-term and long-term debts.

A ratio above 1 indicates the company has sufficient assets to cover its liabilities.

Solvency Ratio in Insurance

In insurance, the solvency ratio measures the ability of an insurer to meet its long-term obligations.

It compares the insurer's available capital to its liabilities, ensuring it can pay claims and remain solvent.

Regulatory bodies often set minimum solvency ratios to protect policyholders and maintain stability in the insurance industry.