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What is meant by solvency of business?

Answer

Solvency of business means the ability of business to meet its long-term liabilities. Solvency ratios such as Debt to Equity Ratio, Total Asset to Debt Ratio, Interest Coverage Ratio, etc. are some of the important solvency ratios that help the investors to know whether the company’s cash flow is sufficient to meet its short term and long term liabilities. The better the solvency position of business, the better is the market standing of such firms.