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Definition
A solvency ratio measures long-term financial health — for example net assets or operating cash flow against total liabilities. Unlike liquidity ratios, it assesses survival over years, not weeks.
In plain terms
Liquidity asks "can you pay next month?"; solvency asks "can the business ultimately meet all its debts?" A firm can be liquid yet insolvent, or solvent yet illiquid.
Why it matters for your company
Lenders read solvency ratios alongside gearing to judge long-term resilience. Strong solvency widens borrowing options and lowers rates. See solvency and liquidity.
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