Sign up for our curated weekly newsletter delivering exclusive market insights to your inbox.
- Learning Center
- Glossary
- S
- Solvency
Solvency
Solvency measures an entity’s ability to meet its financial obligations. This can be expressed as a ratio of the company’s assets to its liabilities. Solvency is a key measure of financial health that investors look for when they analyze a balance sheet.
A company is solvent if its assets exceed its liabilities. Conversely, it is insolvent if its liabilities exceed its assets. A company that is insolvent can continue operating and generating returns for shareholders. However, insolvent companies are generally riskier as they are more likely to become bankrupt.
Sign up for our curated weekly newsletter delivering exclusive market insights to your inbox.