Definition: Solvency is the ability of a corporation to meet its LONG-term financial obligations. Solvency logically compliments liquidity, which is the ability of a corporation to meet its SHORT-term obligations.
To analyze solvency, financial ratios can be used such as:
- Debt to Equity Ratio (divides a company's debt by its equity, showing the relative amount of debt a company has taken on; a low result - below about 0.30 - indicates greater solvency)
- Interest Coverage Ratio (divides operating income by debt interest payments, showing its ability to pay interest on its debt; a higher result means a greater solvency).


Learn more about Solvency

More on investing: Alternative Investments, Asset Management, Break-even Point, BRIC Countries, Capital Structure, more...

You may also like: Full-time MBA, Executive MBA, Executive Education, Online MBA.

MBA Brief offers concise, yet precise definitions of concepts, methods and models as taught in a study Master of Business Administration.

We like to keep things short, and provide links to learn more about your subject.

Add MBA Brief to your desktop / iPad


© 2023 MBA Brief - Last updated: 7-6-2023  -  Privacy   |   Terms