26 Long-term solvency performance measures

‘Solvency is maintained by means of a national debt, on the principle, “If you will not lend me the money, how can I pay you?’”

Ralph Waldo Emerson, American philosopher and poet

In a nutshell

Solvency is the ability of a business to pay its long-term debts. It is critical to risk management and long-term success.

Solvency performance measures give an indication of ‘financial strength’, i.e. the ability to withstand exposure to short-term operating setbacks and achieve long-term growth.

Solvency is the result of a business’s ability to balance its risk and return by raising and maintaining the right type of cost-effective finance.

The key measures of solvency are gearing and interest cover.

Need ...

Get The Finance Book now with O’Reilly online learning.

O’Reilly members experience live online training, plus books, videos, and digital content from 200+ publishers.