Debt-to-equity (D/E) ratio
With the debt-to-equity ratio (D/E ratio), you can also see how much of a company is actually funded by its debt. The higher the ratio, the more debt. The formula is:
D/E Ratio = Outstanding Debt / Equity
Equity ratio
This is the amount of shareholder equity held in a company. It's much better for a company to be funded by shareholder equity than by debt since shareholders are owners who are often in it for the long haul. Here's that formula:
Shareholder Equity Ratio = Total Shareholder Equity / Total Assets
Interest coverage ratio
The interest coverage ratio is a common and easily understood solvency ratio. It shows how well a company can cover its interest payments with its earnings before taxes and interest (EBIT). This is what the formula looks like:
Interest Coverage Ratio = EBIT / Interest Expenses
Solvency ratios vs. liquidity ratios
There are several different categories of financial ratios that can help you figure out the financial health of a company, and solvency ratios are among them. But there's a similar group of measures called liquidity ratios that can also tell you useful things about the company in question.
Commonly confused, these two ratio groups are very different. Solvency ratios look at all assets, including those harder-to-liquidate things; liquidity ratios only look at liquid assets against short-term debts. So, if you want to know the long-term outlook for a company, solvency ratios can generally answer that question; if you want to know the short-term outlook, look to liquidity ratios.