Solvency

Tax Glossary Definition

Solvency

Solvency describes an organization’s capacity to meet its long-term debts and continue operating successfully in the future. It indicates whether a company’s total assets are sufficient to cover its total liabilities, ensuring that it can fulfill its financial commitments as they arise. Example: Investors and creditors analyze solvency to determine a firm’s long-term financial stability.

For example, if a company holds a high level of debt relative to its assets, it may face solvency issues—signaling financial risk for both shareholders and lenders.

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