Solvency refers to a business’s capacity to fulfill its long-term financial obligations. It’s a crucial indicator of a company’s financial health, often assessed using various solvency ratios. The most basic measure compares assets to liabilities, with a solvent company having more assets than liabilities. While small business owners may focus on daily operations, understanding solvency is vital as creditors and investors use these ratios to evaluate a company’s long-term viability. Maintaining good solvency is essential for securing financing, attracting investors, and ensuring the overall sustainability of a business in the long run.
Solvency meaning
Solvency refers to a company’s ability to meet its long-term financial obligations and debt payments when they come due. It measures whether a business has sufficient assets and cash flow to cover all its debts over time.
Define solvency
Solvency is the financial condition where a company’s total assets exceed its total liabilities, indicating it can pay off all debts without going bankrupt. A solvent company has enough resources to sustain operations and fulfill financial commitments in the long run.