The ability of a business (legal person) or an individual (natural person) to meets its long-term obligations (long-term fixed expenses) and to financially support long-term expansion and growth. Solvency implies the ability to pay or settle all the money owed when falling due. Solvency is the state or quality of being solvent- i.e., able to meet long-term obligation on a timely manner.

Technically, solvency represents the degree to which the current assets of an individual or entity exceed its current liabilities.

Solvency is usually measured using solvency ratios– a set of ratios intended to measure the extent to which an entity’s assets can cover its liabilities– i.e., its commitments for future payments (particularly, long-term liabilities). It is a measure of an entity’s capital adequacy, so to speak.