Solvency analysis evaluates a firm’s long-term financial stability and its structural capacity to survive macroeconomic shocks, sustain its capital structure, and service long-term fixed debts over time.

Quantifies the capital mix provided by creditors vs. shareholders:

Debt-to-Equity = Total Debt (short-term + long-term interest-bearing) / Total

Measures the percentage of the firm’s total assets financed via debt liabilities:

Debt-to-Assets = Total Debt / Total Assets

Financial Leverage (Equity Multiplier) is commonly:
Equity Multiplier = Total Assets / Total Equity

Measures the multiplier effect of debt within the asset base (a key input for DuPont analysis):

Equity Multiplier = Average Total Assets / Average Total Equity

Assesses the safety margin for servicing annual debt interest charges out of operating profits:

Interest Coverage = EBIT / Total Interest Expense

Eliminates non-cash accounting charges like depreciation from the safety calculation to look at pure cash generation:

Cash Coverage = (EBIT + Depreciation & Amortization) / Total Interest Expense