Updated: 29 February 2024

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.

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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