What is solvency?
I use the term solvency to mean 1) that a company is able to pay its obligations when they come due and 2) that a company is able to continue in business.
Some people look to a company’s working capital in deciding whether a company is solvent. They conclude that a company with a positive amount of working capital is solvent. In other words, a company that is solvent has more current assets than it has current liabilities. Stated another way a company that is solvent will have a current ratio that is greater than 1:1.
Others look at a company’s total assets and total liabilities in deciding whether a company is solvent. They might conclude that if a company’s total assets are greater than its total liabilities, the company is solvent.
I suspect that the definition of solvency varies among people in the same country and from country to country. You should check the legal system in your country to find the appropriate meaning.
Learn more about Financial Ratios.
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PLEAS COULD YOU DETAIL MORE IN RESPECT OF SOLVENCE
I have checked in the part obout financial ratio analysis and financial statement analysis. But find nothing about the classification of ratios, such as solvency, liquidity, profitability. People often use this ratios to analyze financial healthy condition of companies. I want to know more about this part and thanks for your devotion in sharing.
with regards please provide a breaf answer for the following quistion.
1 what is commetment
in this qesation you gave brife introduction about solvency ratio
The going concern concept of accounting means a business is expected to operate for a foreseeable future. A business is doing well if it current assets is greater than it current liabilities. Solvency means the ability of a business to survive without any dissolution.