A financial ratio that is intended to provide information about a firm’s solvency or liquidity over the long run, i.e., its ability to meet long-term requirements for payment of obligations or the so-called a firm’s financial leverage. Hence, there ratios are often called financial leverage ratios or simply leverage ratios. The most common ratios include:
* Total debt ratio = (total assets – total equity)/ total assets
* Debt-equity ratio = total debt/ total equity
* Equity multiplier = total assets/ total equity
* Times interest earned ratio = EBIT/ interest
* Cash coverage = (EBIT + depreciation)/ interest
Long-term liquidity ratios are also known as long-term solvency ratios.
