Definition
Solvency is the ability of a person, business, or institution to meet long-term financial obligations, meaning its assets and expected income are sufficient to cover its liabilities over time.
Why It Matters
Solvency indicates long-run financial health and affects borrowing costs, investor confidence, and bankruptcy risk.
Example
A company is solvent if the value of its assets exceeds its debts and it can keep paying what it owes.