Solvency

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Solvency, in accounting, refers to an entity’s ability to meet its long-term financial obligations and sustain operations over time. It is a critical measure of financial health, indicating whether a company can cover its debts with its assets. The solvency definition in accounting often involves analyzing balance sheets and cash flow statements to assess financial stability. Solvency is essential for investors and creditors evaluating a company’s risk profile.

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