Insolvency Ratio Calculator
This calculator measures the insolvency ratio, a financial metric used to assess a company’s long-term ability to cover its liabilities with available assets. It's crucial for risk assessment, credit evaluation, and corporate financial analysis.
Financial Insolvency Risk Calculator
Insolvency Ratio Formula
$$\text{Insolvency Ratio} = \frac{\text{Total Liabilities}}{\text{Total Assets}}$$
Explanation:
The insolvency ratio shows what portion of a company’s assets is financed by liabilities. A ratio greater than 1 indicates that the company owes more than it owns, suggesting potential financial distress or insolvency.
The insolvency ratio is a simple yet powerful indicator of a company’s financial health. It’s widely used in:
- Bankruptcy risk evaluation
- Loan approvals and credit scoring
- Corporate restructuring and audit
Example Variables:
- Total Liabilities: $750,000
- Total Assets: $1,000,000
- Insolvency Ratio = 750,000 / 1,000,000 = 0.75
Interpretation:
- Less than 1 = solvent (assets > liabilities)
- Equal to 1 = borderline
- Greater than 1 = insolvent (liabilities > assets)