Solvency

What Does Solvency Mean?

Solvency refers to a business entity’s ability to fulfill its long-term financial obligations. An entity is considered solvent when its assets exceed its liabilities.

Insuranceopedia Explains Solvency

Solvency indicates that a company is not only profitable but also capable of paying its debts and meeting future obligations. It is measured using a ratio that takes into account the company’s income, assets, operational expenses, debts, and interest on those debts.

Solvency is an important factor for potential investors, who typically review a company’s financial statements to assess its ability to remain solvent.