Solvency

“Solvency” describes our ability to pay our debts and meet our financial obligations. It’s not just about having cash in our pocket today...it’s about being able to keep on keepin’ on well into the future without incurring any additional debt.

How do we know if we’re solvent? We subtract our total liabilities from our total assets. If the number is positive, we’re solvent. If it’s negative, we’re not.

In the business world, solvency is kind of a big deal. If an organization looks like it might not be able to pay its debts, that can spell disaster for investor confidence and, as a result, the company’s stock price. Also, the more solvent a business is, the better financing terms it can secure if it decides it wants to take on that additional debt. High solvency is like a high credit score: it instills confidence in our ability to borrow money and be able to pay it back on time.