What is solvency concerned with?

Solvency refers to a company's ability to meet its long-term financial obligations and sustain operations over a prolonged period. It specifically measures whether a business's total assets exceed its total liabilities, indicating stability and a strong financial foundation in the long term. If a company is solvent, it can demonstrate that it has sufficient resources to cover its debts and liabilities over many years into the future.

This concept is crucial for assessing a company's long-term financial health and viability, as it reflects not only current financial standing but also the future ability to operate without resorting to insolvency. Companies that are not solvent may face significant challenges and risks, including the potential for bankruptcy if they cannot generate enough revenue to meet long-term obligations. This makes solvency a key consideration for investors, creditors, and analysts when evaluating a company's financial performance and prospects.