Solvency: meaning, definitions and examples
💰
solvency
[ˈsɒlvənsi ]
Definition
financial stability
Solvency refers to the ability of an individual or organization to meet its long-term debts and financial obligations. This concept is crucial for assessing the financial health of companies, as it indicates whether they can continue operations without the risk of bankruptcy. A solvent entity has a positive net worth, meaning its assets exceed its liabilities. Tracking solvency helps investors, creditors, and stakeholders to make informed decisions about financial risks. In practical terms, a solvent business can generate enough revenue to cover its liabilities comfortably.
Synonyms
financial stability, fiscal strength, liquidity.
Examples of usage
- The company is in a strong position of solvency after securing additional funding.
- Monitoring solvency is essential for preventing financial crises.
- Investors prefer to invest in firms with high solvency ratios.
Interesting Facts
Etymology
- The term originates from the Latin word 'solvere,' which means 'to loosen' or 'to solve,' relating to resolving financial obligations.
- In the 18th century, it began to be used in the context of finance, linking the idea of solving problems to monetary capacity.
Finance
- Solvency is crucial for businesses as it measures their long-term viability and health, indicating they can meet obligations beyond immediate bills.
- A solvency ratio is a key financial metric that helps investors assess a company’s ability to cover its long-term liabilities with its assets.
Economics
- In economics, a lack of solvency can lead to bankruptcy, where a person or company cannot pay their debts and may need legal protection.
- Governments also have solvency, which impacts national economies; if a government is solvent, it can maintain public services and fund projects.
Psychology
- Financial solvency can significantly impact mental health, as stress from financial instability can lead to anxiety and other psychological issues.
- Research shows that knowing one's financial situation can lead to better decision-making and improved wellbeing.
Pop Culture
- In movies and books, characters facing financial crises often grapple with solvency, raising tension and illustrating the stakes of financial decisions.
- Popular media often portrays wealthy characters with high solvency, contrasting them against those who face debt, highlighting class issues.
Translations
Translations of the word "solvency" in other languages:
🇵🇹 solvência
🇮🇳 संपत्ति
🇩🇪 Zahlungsfähigkeit
🇮🇩 solvabilitas
🇺🇦 платоспроможність
🇵🇱 zdolność płatnicza
🇯🇵 支払い能力
🇫🇷 solvabilité
🇪🇸 solvencia
🇹🇷 ödenebilirlik
🇰🇷 지급 능력
🇸🇦 القدرة على السداد
🇨🇿 schopnost splácet
🇸🇰 platobná schopnosť
🇨🇳 偿付能力
🇸🇮 plačilna sposobnost
🇮🇸 greiðsluhæfi
🇰🇿 төлем қабілеттілігі
🇬🇪 გადახდის უნარი
🇦🇿 ödəmə qabiliyyəti
🇲🇽 solvencia