Solvency ratio

The solvency ratio shows how much of the company's assets are financed by equity. It is one of the most important key figures when assessing financial robustness because it indicates how well the company can withstand losses, market fluctuations, or periods of weak earnings. A high solvency ratio means a strong capital base. A low solvency ratio shows that the company is more dependent on debt and therefore more vulnerable.

How is the solvency ratio calculated?

The formula is simple: Solvency ratio = (Equity × 100) / Total assets

Equity is the portion of assets that belongs to the owners, while total assets cover everything the company owns—e.g., cash, buildings, machinery, inventory, and accounts receivable.

Example:
Assets: DKK 10,000,000
Equity: DKK 3,000,000
Solvency ratio: 30%

This means that 30% of the company's assets are financed by the owners and 70% by external capital.

Why is solvency ratio important?

The solvency ratio provides a clear picture of the company's financial strength.

A high solvency ratio indicates:

strong capital resources
less dependence on loans
better ability to withstand losses
greater credibility among investors and lenders

A low solvency ratio may indicate:

high debt dependency
increased financial risk
low resilience in the face of declining earnings

Therefore, the solvency ratio is often used as a key parameter when banks, investors, and suppliers assess a company's creditworthiness.

What is a healthy solvency ratio?

There is no single correct solvency ratio, but general rules of thumb are:

Over 30–40%: typically healthy level for established companies
Below 20%: may be a warning sign, especially if the company also has low earnings
Start-ups: may have low solvency ratios because equity capital is built up over time

The most important thing is the trend—whether the solvency ratio is stable, rising, or falling.

Solvency ratio in practice

The solvency ratio is used to assess:

business resilience
risk of insolvency
balance between debt and equity
the need for capital injection or debt reduction

A company may well have high turnover and positive earnings, but low solvency – and thus be vulnerable to economic fluctuations.

Solvency ratio in Qatchr

In Qatchr, your solvency ratio is automatically calculated based on your company's balance sheet. It is displayed directly in a credit report and included in the overall financial overview of customers, suppliers, and partners. Credit monitoring makes it possible to follow developments from year to year and react if solvency weakens—often long before problems become apparent in day-to-day operations.