[Verse 1]
When companies need money to grow and expand
They can borrow from banks or take investors' hands
But how much debt is too much to bear
That's where solvency ratios help us prepare
We look at the balance sheet, assets and debts
To see if this company's making safe bets
Long-term stability is what we seek
These ratios tell us if finances are weak
[Chorus]
Debt to equity, interest coverage too
Debt ratios show us what companies can do
Can they pay their bills when times get rough
Solvency ratios tell us if they're strong enough
Remember the three, they work as a team
D-E-I, debt equity interest supreme
Check the coverage, check the load
Solvency ratios crack the code
[Verse 2]
Debt to equity is the first one we'll learn
Total debt divided by equity earned
If the number's high, there's cause for concern
Too much borrowing makes investors turn
Point five or lower is generally good
Higher than one means they've borrowed more than they should
Shareholders' equity versus what they owe
This ratio helps us understand cash flow
[Chorus]
Debt to equity, interest coverage too
Debt ratios show us what companies can do
Can they pay their bills when times get rough
Solvency ratios tell us if they're strong enough
Remember the three, they work as a team
D-E-I, debt equity interest supreme
Check the coverage, check the load
Solvency ratios crack the code
[Verse 3]
Interest coverage ratio comes up next
EBIT divided by interest expense
Can they pay the interest on their debt
Higher numbers mean less financial threat
Five times or more is what we like to see
Lower than two-point-five makes analysts flee
Earnings before interest and taxes on top
If this ratio's low, their payments might stop
[Bridge]
Total debt ratio rounds out our three
Total debt divided by assets, you see
Point four or less keeps companies sound
Higher than point six, red flags are found
These ratios together paint the whole scene
Financial stability, living the dream
Or warning us when trouble's in sight
Solvency analysis keeps investments right
[Chorus]
Debt to equity, interest coverage too
Debt ratios show us what companies can do
Can they pay their bills when times get rough
Solvency ratios tell us if they're strong enough
Remember the three, they work as a team
D-E-I, debt equity interest supreme
Check the coverage, check the load
Solvency ratios crack the code
[Outro]
So when you're analyzing stocks to buy
Let solvency ratios be your guide
Long-term success needs financial health
These ratios protect your investing wealth