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Definition
Solvency has two senses: being able to pay debts as they fall due (cash-flow solvency), and having assets worth more than liabilities (balance-sheet solvency). A solvent company can meet its obligations; an insolvent one cannot.
Why it matters
Lenders assess solvency before advancing credit, and directors have legal duties around trading while insolvent. Strong free cash flow and sensible gearing support it. See insolvency.
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Insolvency
When a company cannot pay its debts as they fall due, or its liabilities exceed its assets — a state that…
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Free cash flow
The cash a business generates after operating costs and essential outgoings — the money genuinely available…
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Gearing ratio
The gearing ratio compares a company's debt with its equity — high gearing means heavy reliance on borrowing,…
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When a business grows faster than its working capital can support — straining cash flow even as sales and…
Read →Funding for UK limited companies
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