Short definition: Solvency is the ability of a company or individual to meet its long-term financial obligations.
Explanation: It refers to the ability to pay debts as they become due and to continue operating in the long run. A solvent company has enough assets to cover its liabilities, while an insolvent company does not.
Example: A company with a high level of debt relative to its assets might be considered to have low solvency and could be at risk of bankruptcy if it is unable to generate enough cash flow to meet its debt obligations.
Additional information (optional): Solvency is different from liquidity, which refers to the ability to meet short-term financial obligations. A company can be liquid but insolvent, if it has enough cash on hand to pay its current bills but not enough assets to cover its long-term debts.