Long-term solvency ratios examine two elements. The first is the proportion of debt the company uses in its financial structure. The second is its capability to pay the interest on the debt (that is, to service the debt).
Solvency is the capability of a company (or individual) to pay its bills on time.
The debt-to-equity ratio, also called the debt-equity ratio, is the first of the three long-term solvency ratios we examine. The debt-to-equity ratio measures the extent to which the owners are using debt—that is, trade credit, liabilities, and borrowings—rather than their own funds to finance ...