In finance or business, solvency is the ability of an entity or individual to pay debts. Solvency can also be described as the ability of a corporation to meet its long-term fixed expenses and to accomplish long-term expansion and growth. The better a company's solvency, the better it is financially. When a company is insolvent, it means that it can no longer operate and is undergoing bankruptcy.

Solvency is a different concept from profitability, which refers to the ability to earn a profit. Businesses can be profitable without being solvent (e.g. when they are expanding rapidly). Businesses can be solvent even while losing money (e.g. when they cannibalize future cash flows, like selling accounts receivable). A business is bankrupt when it is unprofitable and insolvent.

Solvency is also a clinical term used to describe successful recovery for people with compulsive credit card addiction or any form of shopping addiction or other compulsive debting problems who are now consistently abstaining from incurring any further unsecured debt. This would be roughly equivalent to describing an alcoholic who is now sober.

[edit] See also

Look up solvency in Wiktionary, the free dictionary.

• Insolvency
• Accounting liquidity