Solvency

Solvency

In finance, solvency is the ability of an entity to pay its debts with available cash. Solvency can also be described as the ability of a corporation to meet its long-term fixed expenses and to accomplish long-term expansion and growth. The better a company's solvency, the better it is financially. When a company is insolvent, it means that it can no longer operate and is undergoing bankruptcy.

Solvency is a different concept from profitability, which refers to the ability to earn a profit. Businesses can be profitable without being solvent (e.g. when they are expanding rapidly). Businesses can be solvent even while losing money (e.g. when they cannibalize future cash flows, like selling accounts receivable). A business is bankrupt when it is unprofitable and insolvent.

ee also

*Insolvency
*Accounting liquidity


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  • Solvency II — ist ein Projekt der EU Kommission zu einer grundlegenden Reform des Versicherungsaufsichtsrechts in Europa, vor allem der Solvabilitätsvorschriften für die Eigenmittelausstattung von Versicherungsunternehmen. Am 10. Juli 2007 hat die Europäische… …   Deutsch Wikipedia

  • Solvency II — is the updated set of regulatory requirements for insurance firms that operate in the European Union. The rationale for European Union insurance legislation is to facilitate the development of a Single Market in insurance services in Europe,… …   Wikipedia

  • solvency — sol·ven·cy / säl vən sē/ n: the quality or state of being solvent Merriam Webster’s Dictionary of Law. Merriam Webster. 1996. solvency …   Law dictionary

  • Solvency — Sol ven*cy (s[o^]l ven*s[y^]), n. [See {Solvent}.] The quality or state of being solvent. [1913 Webster] …   The Collaborative International Dictionary of English

  • solvency — 1727; see SOLVENT (Cf. solvent) + CY (Cf. cy) …   Etymology dictionary

  • solvency — [säl′vən sē, sôl′vən sē] n. a solvent state or quality …   English World dictionary

  • solvency — The condition of having sufficient funds to cover losses. In the short term, solvency is a manifestation of liquidity. Fundamentally, however, solvency is a function of capital adequacy. See insolvency Ability to meet obligations. Bloomberg… …   Financial and business terms

  • solvency — The condition of a person having sufficient assets to meet his obligations as they mature in the ordinary course of business. Ability to pay one s debts, not a mere disposition to pay. Janes v Scott, 59 Pa 178. A word which implies as well the… …   Ballentine's law dictionary

  • Solvency — The ability of a corporation to meet its long term fixed expenses and to accomplish long term expansion and growth. The better a company s solvency, the better it is financially. When a company is insolvent, it means that it can no longer operate …   Investment dictionary

  • solvency — [[t]sɒ̱lv(ə)nsi[/t]] N UNCOUNT: usu with supp A person or organization s solvency is their ability to pay their debts …   English dictionary

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