solvency
SOL-vun-see
/ˈsɒlvənsi/
The possession of assets in excess of liabilities; ability to pay one's debts.
Crucial for pension funds; if a fund lacks solvency, it cannot pay its future retirees.
The story behind the word. From the Latin 'solvere', meaning 'to loosen' or 'to untie'. A solvent person has 'untied' themselves from the bonds of debt.
Word relationships
- stability: A broader term for being firm and unlikely to collapse.
- insolvency: The state of being unable to pay one's debts.
- bankruptcy: A legal process for those who are insolvent.
Commonly confused with
- liquidity: Liquidity is how fast you can get cash; solvency is whether you have enough total value to cover all debts.
Word family
- solvent (adjective): Able to pay one's debts.
Collocations
- long-term solvency
- financial solvency
- solvency ratio
Example sentences
- "The long-term solvency of the national pension system is a major concern for the aging population." Economic Report
- "The auditor's report confirmed the company's solvency despite the recent losses." Corporate Finance
Memory hook
If you are 'solvent', you have the 'solution' to your debt problems. Untied from debt.
When not to use
Don't confuse with 'liquidity', which is having cash on hand. Solvency is about total wealth versus total debt.
Fun facts
- In chemistry, a 'solvent' is a substance that dissolves (loosens) another substance.
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