Explain leverage ratio and solvency ratio.

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A leverage ratio is any one of several financial measurements that look at how much
capital comes in the form of debt (loans) or assesses the ability of a company to meet
financial obligations.

The solvency ratio indicates whether a company’s cash flow is sufficient to meet its
short-term and long-term liabilities. The lower a company’s solvency ratio, the greater the
probability that it will default on its debt obligations.