Solvency is an economic term that refers to the enterprise’s ability to pay in time, in the required amount and on the required place, all obligations. There is distinguished:
- Short-term solvency, that is a liquidity of the enterprise - the enterprise’s ability to meet its short-term financial obligations due within 1 year; indicators of this type deal with the financial positions of the enterprise in terms of cash
- Long-term solvency - the enterprise’s ability to meet its long-term financial obligations payable over 1 year; indicators of this type deal with the capital structure of the enterprise
Use of the solvency in practice: In the enterprise it is used by CFO in the financial analysis to analyze ratios.
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