The guarantee ratio, shows how the company can meet its obligations with its consignees, guarantors or external providers. It presents everything the company has, checking everything it owes.
Guarantee = asset / liability due
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For an organization, if the deduction is less than the normal indicator, it means that the company may be in the hands of its lenders at risk of bankruptcyOn the contrary, if the consequence is higher, it indicates that the company does not require credit for having a large capital.
In this article you will find:
What are Guarantee Ratios?
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It's a essential financial device to understand the conditions of a business, know how much difficulty exists and what is its potential. It is related to the assets exposed for a payment if that situation arises.
In financial terms, it is essential to be aware of the basic indicators, because the guarantee ratio is located in them. This knowledge is significant for the company and for its guarantors, even for its potential investors.
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How the Guarantee Ratio is Calculated
When studying the financial conditions of a company, apply different calculations that allow to observe and understand exactly its extent, which is the position of the business.
It is a deduction, which allows to reason if the company has the conditions of how to respond to all the commitments and obligations it assumes.
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To calculate it, it is necessary to study the content of the indicators, delimit the two dimensions that compose it, which are: the existing assets and the required liabilities.
Guarantee ratio = existing asset / callable liability
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- The existing or real asset is the one that does not evaluate the artificial assets, because those that are required are the assets enabled to be settled.
- The payable liability is the loan that the company has acquired with distributors, partners or with banks.
The quotient, is the ratio and it will show:
- High ratio: if they are only tenths it does not mean anything, instead they are many levels, it could be an unproductive management of the company, which could cause financial problems or loss of the company. One possible way out is to acquire an external credit.
- Reduced ratio: it is the most vulnerable situation for a company, at this level the company does not have the asset capacity to face all the debts to pay, therefore, the company is bankrupt.
- Average ratio: corroborates proper debt and asset management and does not reveal any possibility of bankruptcy.
If the result exceeds the stipulated higher value, it means that the company does not require external indebtedness, therefore, it does not require investments to promote the business.
Importance of the Guarantee Ratio
Today it is absolutely essential to have the information, because it represents taking an appropriate action in all types of businesses, here lies the importance of obtaining this indicator.
The importance of the guarantee ratio is based on the results of the indicators, because it is through the figure that the liquidity of the company is defined, which is the capacity of assets that prove that it will repay the borrowed money.
It is important to show investors the fund indicators, because they guarantee more security and confidence to potential investors.
Types of Guarantee Ratio
There are essential data that show the guarantee ratios to make an investment in all types of businesses that we must know:
Debt Ratio: It is a bank ratio, which is obtained by dividing the debts can be long-term as well as short-term. This covers the complement of normal and non-current liabilities for the net capital of a company. It shows the improper investment, that is, the debt ratio that the company has.
It will be divided into two basic opinions:
- Every company owns its assets, it can obtain it in the following way: with its own capital, which is the transparent equity or through external resources, which is the liability.
- Companies have a greater or lesser disposition of foreign investment resources, that is, debts that they have to pay, coming from entities that produce interest.
Solvency Ratio: It is the ability of the company to meet its payment obligations.
Liquidity Ratio: This indicator shows how the company can face all its debts and its cancellation agreements.
Profitability Ratio: it focuses on the investigation of the company's procedure, measures the level of well-being of the interests of its investors.
Treasury Ratio: Evaluates a company's ability to pay in relation to its short-term commitments.
It is a resource that is used as an element of verification and evaluation of a company, by obtaining this knowledge we know the seriousness, solidity and investment benefit of a negotiation.
