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Long-term Solvency Ratios

1. Debt-Equity Ratio = Debt / Equity

(or) External Equities / Internal Equities

(or) Outsider’ s Fund / Shareholder’s Fund

External Equities refer to the total outside liabilities. The term internal equities refers to all claims of preference shareholders and equity share holders such as share capital reserves and surplus. Outsider’s fund refers to all short term debts like mortgage, bills etc.

Computation of long term financial rati0s, the term debt, like debentures are to be considered.

Acceptable norm for this ratio is considered to be 2:1.

2. Proprietary  Ratio = Shareholder’s Fund  / Total Assets

(or) Shareholder’s Fund / Total Tangible Assets

Shareholder’s fund includes preference share capital, Equity share capital, Reserves surplus, Profit & Loss Account Balance if any.

 Total Assets

Total assets represent all assets including goodwill. But total tangible assets mean total assets minus goodwill, Profit & Loss Ale (Debit) Balance, Preliminary Expenses.

3. Ratio of fixed assets to proprietor’s fund =Fixed Assets / Proprietor’s Fund

[Fixed assets are valued at original cost of the assets less depreciation].

4. Current assets to proprietor s fund Ratio = Current Assets / proprietor’s Fund