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What is Solvency
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 and long-term solvency.

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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Last update: 16.02.2016

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