26 Long-term solvency performance measures
‘It’s our contention that equity may be in the money, depending on where the liabilities lie.’
David Tepper, American businessman
In a nutshell
Solvency is critical to risk management and long-term success.
Solvency is the ability of a business to service its long-term debts. Raising and maintaining the right type of cost-effective finance enables a business to achieve solvency.
Solvency performance measures provide an indication of ‘financial strength’ – the ability of a business to withstand exposure to short-term setbacks and achieve long-term growth.
The key measures of solvency are gearing and interest cover.
Need to know
Why is this important?
Banks and other providers of debt place demands ...
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