Ministry of Higher and Secondary Special Education of the Republic of Uzbekistan Tashkent State University of Economics

Debt-to-Asset Ratio: Debt-to-asset ratio measures the percentage of total assets that are financed through debt. The formula to compute the debt-to-asset ratio is as follows:

Debt-to-asset ratio= Total debt/Total asset⁹
The higher the ratio, the lower its solvency with higher financial risk. For instance, if the debt-to-asset ratio is 0.65 then it means that 65% of total assets are financed through debt, which indicates that the company is not financially healthy.

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  Interest Coverage Ratio: Interest coverage ratio determines how many times the company would be able to cover interest obligations through its earnings before interest and taxes. This ratio can be computed by using the following formula:
  

Interest coverage ratio= Earning before interest&taxes/Interest payment¹⁰
A higher interest coverage ratio indicates strong solvency along with lower financial risk.
Solvency analysis helps to evaluate a company’s financial health. Following are the advantages of solvency analysis:

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  Solvency analysis allows you to perform various tasks such as forecasting the company’s financial position and its stability, supervise the company’s ability to repay its obligations, and evaluate the effectiveness of using its funds.
  
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  It helps the company to check its survival capacity.
  
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  Solvency analysis helps the company to procure funds from external sources as strong solvency will help them to procure funds more easily.
  
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  Investors also analyze the company’s solvency and liquidity so that they can make rational investment decisions.
  

Solvency analysis is generally done through solvency ratios, which is not a sufficient measure. There are other factors such as cash management practices that also affect a company’s solvency. For instance, a company uses less debt as compared to equity, but if its cash management practices are ineffective, then solvency analysis would suggest that the company is doing well financially. But in reality, it is insolvent due to insufficient liquid assets.

Table 1: Methods of analyzing the financial condition of the enterprise¹¹

№	Methods of analysis	The essence of the method
1	Horizontal	Comparing each position of the report with the previous period, which allows you to identify trends in changes in your sheets and their association, and therefore calculates growth rates.
2	Vertical	To determine the structure of the final financial indicators of the analysis, I.E. Determining the specific severity of individual reports in the final indicators
3	Tendency	Comparing each position of the report over a number of years and identifying a trend, I.E. On this basis, the general trend and forecast for further development of the situation
4	Calculation of financial ratios	Calculate the relationship between the positions of individual reporting areas or different reporting forms

There are key points that should be considered when using solvency and liquidity ratios. This includes using both sets of ratios—liquidity and solvency—to get the complete picture of a company's financial health; making this assessment on the basis of just one set of ratios may provide a misleading depiction of its finances.
As well, it's necessary to compare apples to apples. These ratios vary widely from industry to industry. A comparison of financial ratios for two or more companies would only be meaningful if they operate in the same industry.
Finally, it's necessary to evaluate trends. Analyzing the trend of these ratios over time will enable you to see if the company's position is improving or deteriorating. Pay particular attention to negative outliers to check if they are the result of a one-time event or indicate a worsening of the company's fundamentals. 
Solvency and liquidity are equally important, and healthy companies are both solvent and possess adequate liquidity. A number of liquidity ratios and solvency ratios are used to measure a company's financial health, the most common of which are discussed below.

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