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Solvency Ratios

April 13, 2006

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The final group of ratios are designed to help you measure the degree of financial risk that your business faces. "Financial risk," in this context, means the extent to which you have debt obligations that must be met, regardless of your cash flow. By looking at these ratios, you can assess your level of debt and decide whether this level is appropriate for your company. Commonly used solvency ratios are:

• debt to equity
• debt to assets
• coverage of fixed costs
• interest coverage

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