What is solvency?
In the world of business and finance, solvency is a term used to refer to the current level of financial stability associated with a company or individual. The deadline may also apply to the state of a specific area of finances such as insurance, cash flow or assets. Being a solvent is to be in a position where all current financial obligations can be honored according to the conditions related to each debt, while still having assets remaining for other purposes.
Financial solvency is very important, whether it runs a household or a company. Individuals and families seek to create reserves of assets that provide the stability of the household, even if the main source of income is interrupted or disappeared for some time. The household that is a solvent will be able to work without duties that will become an accompaniment and still have some resources after these duties are settled in a month.
Similarly, businesses are trying to be in a position where they are always at hand to effectivelyAnd they managed to make the company's debts in time. For business, the principle of solvency of liquidity is particularly important. This simply means that the company has cash in their hand in honor of current obligations, or at least has assets that can be quickly converted to cash without affecting the business's ability to continue working. In the event that the company becomes insolvency and cannot re -discuss the existing debt to conditions that can be managed, there is a great chance that the company will be sold or simply dissolved. Any remaining assets are sold and revenues are divided among different creditors to settle at least part of an outstanding debt.
businesses usually pay close attention to what is called the ratio of solvency or margin. This is simply a relationship between debt and assets that include cash or pads that can be quickly converted to cash. Good margin or solvency ratio is one where the business has enough money to meet the current debt without limiting any othernecessary business functions. There are different formulas for calculating the ratios and margins of solvency, many of which include factors related to the specific industries associated with the company.
timely and accurate financial accounting is one of the most important tools in evaluating margins or solvency conditions. By maintaining all financial records, it is much easier to identify trends that may indicate that the household or business will approach insolvency and take appropriate measures to restore earlier levels of financial stability.