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Solvency Report

The Solvency report evaluates the ranch business’s ability to meet its long-term debts and other financial obligations. It includes the Debt/Asset Ratio, Equity/Asset Ratio, and Debt/Equity Ratio as of the inventory date.

  • Debt/Asset Ratio compares total debt with total assets and indicates the proportion of assets financed by debt.
  • Equity/Asset Ratio compares total equity with total assets and indicates the proportion of assets financed by owner equity.
  • Debt/Equity Ratio compares total debt with total equity and indicates the amount of debt relative to the owner’s financial stake in the business.

Together, these measures show how much of the ranch is financed by debt versus owner equity and provide insight into its ability to withstand longer-term financial pressure. This is particularly important information for potential lenders and investors.

How to use it: Use these measures to understand the ranch’s long-term financial structure, degree of financial leverage, and ability to meet long-term obligations. Because these are balance-sheet measures, they describe the ranch’s financial position on the inventory date rather than profitability over the following year.