20-Analysis of Solvency (2)
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Introduction of Credit Management for Overseas Trade

36 Things You Need to Know About Credit Management for Overseas Trade

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20. Analysis of Solvency (2)

Debt to Equity Ratio

Debt to Equity Ratio is an indicator to see long-term solvency. Also called D/E Ratio. It shows how much capital you do not need to repay, called equity, for debt that needs repayment, called borrowed capital.

The lower the better, the general rule is 150 to 250% or less. The D/E ratio, which is often used in Japan, is often not the debt but the ratio of interest-bearing debt and equity capital. Note that even with the ratio name being same, the formulae may differ.

 

<Calculation formula>

Total Liabilities / Net Worth = Debt to Equity Ratio (%)

 

Fixed Assets to Net Worth

The fixed ratio is also an indicator to look at long-term solvency. Investment in fixed assets, which is a long-term investment, in accounting terms, it is safe to cover in the range of equity capital. Fixed ratio sees if it is within the scope of equity. The fixed ratio of 100% indicates that the total amount of fixed assets and the total amount of equity capital are the same.

The lower the number, the better. The general rule is 100% or less. Depending on the type of industry, it can be said that an investment that is many times more than the equity capital is an over-investment.

 

<Calculation formula>

Fixed Assets / Net Worth = Fixed Assets to Net Worth Ratio (%)

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【PDF】Introduction of Credit Management for Overseas Trade

Introduction of Credit Management for Overseas Trade

36 Things You Need to Know About Credit Management for Overseas Trade

This ebook was created as a resource for those who have trouble with diverse trading or want to learn Credit Management in a rational.

 

Chapter (Excerpt)

  • Major Differences Between International and Domestic Transactions 
  • Trade Reference
  • Bank Reference
  • Collection Agency
  • Reasons Behind Difficulty in Recovering Delayed Debts
  • Mistakes in International Transactions Where Japanese Companies are Prone to Fail
  • Customer Analysis ~ 5 C's of Credit
  • Dangerous Signs
  • Five Principles of Debt Collection