A financial ratio that is intended to measure solvency or the extent to which an entity’s assets can cover its liabilities– i.e., its commitments for future payments (particularly, long-term liabilities). It is a measure of an entity’s capital adequacy, so to speak.

This ratio has many versions, which are generally reflect the entity’s financial position from a long-term solvency standpoint. These ratios (long-term solvency ratios) measure the entity’s ability to meet its long-term obligations. An entity may use such ratios in its decision-making for the long-term investment of its own funds (equity).

The main solvency ratios include:

• Long-term debt-to-equity ratio.
• Total debt-to-equity ratio.
• Debt ratio.
• Financial leverage.
• Proprietary ratio.