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Capacity of the person or business that issues a financial product to meet the obligation to pay the debt or contract.

The solvency is based primarily on the economic health of the company or institution, which is the product of good management and best use of human and/or productive resources possible and, secondly, on the favourable influence of the environment in which it operates. In order to determine if a company is solvent, the debt situation must be taken into account; the maturity of the debt (when it has to be paid) and the estimated cash receivables to receive during the period of maturity. The longer the period analyzed, the greater the uncertainty of charges (unlike payments, which themselves are normally known or predictable). You can do the analysis from the balance sheet, using the current ratio, with the accounting information of current assets and liabilities. Solvency, besides being related debt is related to leverage. Do not confuse the lack of solvency with liquidity shortages. Someone solvent may circumstantially have liquidity problems as well.