Definition
The solvency ratio measures a company's ability to meet its long-term financial obligations, calculated by comparing net income and depreciation to total liabilities.
Related Services
Used in financial health assessments, risk analysis, and investment decision-making.
Problem and Application
A low solvency ratio may indicate financial distress, increasing the risk of bankruptcy. Investors and lenders closely monitor this metric before funding a company.
Conclusion
Maintaining a strong solvency ratio ensures long-term financial stability and investor confidence.
