don t just look at one ratio from one period most financial ratios are able to tell more of a story when you look at the same ratio over time or look at the same ratio across similar companies 
solvency ratios vs liquidity ratiossolvency ratios and liquidity ratios are similar but have some important differences both of these categories of financial ratios will indicate the health of a company the main difference is that solvency ratios offer a longer term outlook on a company whereas liquidity ratios focus on the shorter term solvency ratios look at all assets of a company including long term debts such as bonds with maturities longer than a year liquidity ratios on the other hand look at just the most liquid assets such as cash and marketable securities and how those can be used to cover upcoming obligations in the near term if an investor wants to know whether a company will be able to pay its bills next year they are often most interested in looking at the liquidity of the company if a company is illiquid they won t be able to pay their short term bills as they come due on the other hand investors more interested in a long term health assessment of a company would want to analyze solvency ratios limitations of solvency ratiosa company may have a low debt amount but if its cash management practices are poor and accounts payable are surging as a result its solvency position may not be as solid as would be indicated by measures that include only debt it s important to look at a variety of ratios to comprehend the true financial health of a company as well as understand the reason that a ratio is what it is furthermore a number itself won t give much of an indication a company needs to be compared to its peers particularly the strong companies in its industry to determine if the ratio is an acceptable one or not for example an airline company will have more debt than a technology firm just by the nature of its business an airline company has to buy planes pay for hangar space and buy jet fuel costs that are significantly more than a technology company will ever have to face example of solvency ratiosbelow is a screenshot of amazon s financial position at the end of 2023 at the end of dec 31 2023 amazon had over 527 9 billion of total company assets 1amazon com balance sheet for fy 2023 although total debt is not explicitly shown on the financial statement it can easily be calculated as the difference between total assets and total stockholders equity both of which are shown using subtraction amazon s debt was 316 632 million at the end of 2022 and 325 979 million at the end of 2023 one can get a sense of amazon s solvency by comparing last year s debt to equity ratio to this year s ratio the ratios for each year are from these two calculations one can assess that amazon s long term solvency increased and the company s financial positioning became less risky over the course of the year this is because the company now has proportionally less debt on its books compared to equity in another example amazon s debt to assets ratio also increased this should come as no surprise as the company was shown to have taken on more debt in comparison to equity so all else being equal the relationship between debt and total assets should have also changed this means that the company used to have 0 68 of debt for every 1 of assets in other words 68 of all company assets were financed through debt now the company has taken on a little bit more debt but also increased its assets so only 62 of its assets are financed through debt slight variations like this are often not a big deal but more consistent long term trends or radical changes from one period to the next can indicate how effectively a company is managing its assets 