Solvency — Long-term financial stability of a business
Solvency is a business's ability to cover all obligations long-term — both current and long-term. Unlike liquidity (short-term), solvency measures overall financial health.
Definition
Solvency is a business's ability to cover all obligations long-term — both current and long-term. Unlike liquidity (short-term), solvency measures overall financial health.
Details
Indicator: solvency ratio = total assets / total liabilities (target >2.0). Insolvency = liabilities > assets → bankruptcy risk. In MK, if a business is insolvent for more than 45 days, the director must file a bankruptcy petition.
Example
Total assets: 5M MKD. Total liabilities: 2M MKD. Solvency = 5M / 2M = 2.5 → business is solvent. If liabilities grow to 6M → insolvent.