Solvency ratios
A key operational prerequisite for a company is solvency, which describes the ratio of the company's equity to its debt. Solvency ratios assess a company's ability to meet its long-term financial obligations. They measure, among other things, the company's ability to withstand losses and its potential to increase long-term debt.
Equity ratio-%
The equity ratio measures the proportion of equity to the company's total capital, i.e., how much of the company's assets are financed by equity.
Self-sufficiency rate interpretation guideline
Generally, an equity ratio is considered excellent if it is over 50%, and good if it is between 30–50%. However, industry-specific differences must be taken into account in the interpretation. The higher a company's equity ratio, the more stable its business foundation is.
Formula
Net gearing ratio-%
Net gearing ratio describes a company's indebtedness. The ratio measures the relationship between the company's interest-bearing net debt and its equity.
Net Indebtedness Ratio Interpretation Guide
The higher the value of the ratio, the higher the company's indebtedness. High indebtedness is a risk factor that limits the company's growth opportunities and reduces its financial flexibility. Due to its high level of debt, a company may not be able to obtain additional loans from financiers, for example, to finance growth. When the value of the ratio is 100, it practically means that the capital contributions of the company's owners and financiers are equal. In this case, the company's financial situation can still be considered somewhat balanced. An excellent net gearing ratio is below 10%, good is 10–60%.
Formula
Relative debt ratio
The relative indebtedness ratio measures the ratio of a company's debts to its annual revenue, thus taking the company's size into account.
Relative Indebtedness Ratio Interpretation Guideline
There are no absolute thresholds for this key figure; instead, it should be relative to the company's operating margin. The more profitable a company's business operations are, the higher relative indebtedness may be acceptable. High relative indebtedness normally requires the company to have a good and stable operating profit (EBITDA) so that loan servicing can be managed honorably each year. Through relative indebtedness, an indicative EBITDA requirement for the company can be derived from its debt servicing obligations.
Formula
Net financing cost percentage
The net financial expense percentage indicates the proportion of current financial expenses to revenue. The larger this proportion, the higher the company's EBITDA requirements become.
Net financing expense percentage interpretation guideline
A good value is below 20%, satisfactory 20–29%, acceptable 30–39%, and poor 40% or more. The effects of the industry and capital structure should be taken into account when interpreting.
Formula
Net financing costs / EBITDA
This ratio indicates how much of the company's EBITDA is consumed by the financing costs of external capital. When calculating this ratio, the EBITDA must be positive.
Net Financing Costs / EBITDA Interpretation Guide
This ratio measures the portion of EBITDA that goes to financiers. With its EBITDA, a company should be able to finance interest expenses as well as loan repayments, taxes, and dividends, and allocate funds for investments and other company development. The proportion of net financial expenses to EBITDA should not become too high. A good value is below 20%, satisfactory 20–29%, acceptable 30–39%, and weak 40% or more. The interpretation should take into account the effects of the industry and capital structure.
Formula
External capital payback period
This ratio describes how many years it would take for a company to pay back its external capital with its financing result.
Guideline for interpreting the external capital repayment period
When interpreting the ratio, attention should be paid to the structure of external capital and the company's life cycle stage. The shorter the repayment period, the lower the financial risk.