solvency

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noun sol·ven·cy \ ˈsäl-vən(t)-sē , ˈsȯl- \
Updated on: 26 Jul 2017

Definition of solvency

:the quality or state of being solvent

Examples of solvency in a Sentence

  1. They reviewed financial records to measure the borrower's solvency.

Recent Examples of solvency from the Web

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'solvency.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

First Known Use of solvency

circa 1727


Financial Definition of SOLVENCY

solvency

What It Is

Solvency is a company’s ability to pay its debts as they become due.

How It Works

Solvency measures a company's ability to meet its financial obligations.
Short-term solvency is often measured by the current ratio, which is calculated by dividing current assets by current liabilities.

Longer-term solvency is evaluated using the solvency ratio, which divides the company’s net worth by its total assets.

A business can be insolvent but still profitable.  For example, a company may borrow money to expand its operations and be unable to immediately repay its debt from existing assets. In this instance, the lender assumes cash flows will increase because of the business expansion and enable the company to comfortably meet payment obligations in the future.

Why It Matters

A company's solvency determines its ability to service debts and achieve long-term growth and profitability. A business that is completely insolvent is unable to pay its debts and will be forced into bankruptcy. Investors should examine all the financial statements of a company to make certain the business is solvent as well as profitable.


SOLVENCY Defined for English Language Learners

solvency

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noun

Definition of solvency for English Language Learners

  • : the state of being able to pay debts


Law Dictionary

solvency

play
noun sol·ven·cy \ ˈsäl-vən-sē \

legal Definition of solvency

:the quality or state of being solvent

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