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Solvency

Last updated: December 22, 2017

What Does Solvency Mean?

Solvency refers to a business entity's ability to meet its long-term financial obligations. It is achieved when the entity's assets exceed its liabilities.

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Insuranceopedia Explains Solvency

Solvency means that the company is not just profitable but that it is also capable of paying its debts and meeting other future obligations. A company's solvency is calculated by a ratio that factors in its income, assets, operational expenses, debts, and the interest on those debts.

A company's solvency is an important consideration for potential investors. Those interested in investing in the company will usually look at its financial statements to ensure that it is solvent.

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