Solvency is a key factor for consideration for any business. Solvency refers to the company’s ability to address its liabilities while still having sufficient assets for other necessary financial and operational activities. It is a good indicator of a company’s financial stability and has a huge influence on a company’s credit rating.
Should a company become insolvent, there is a high probability that the business will simply shut down or be put up for sale. As such, it is crucial for companies to keep their accounting in check and closely monitor its solvency ratios. Doing so will enable the business to address any issues or strategize in response to trends.
