What Is Solvency?

Solvency measures a company's ability to meet long-term financial obligations, reflecting its financial health and operational sustainability. Shareholders' equity, calculated by subtracting liabilities from assets, serves as a fundamental metric for assessing solvency. This quick measure, along with solvency ratios like the interest coverage ratio and debt-to-assets ratio, provides deeper insights into a company's financial stability. Understanding solvency is crucial, especially for companies facing industry-specific challenges and market fluctuations.

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