Ratio, Solvency

Measures of solvency assess the business's access to cash and liquid assets to pay short-term debts. The current ratio and liquidity ratio are examples of solvency ratios. In practice solvency ratios are a lagging indicator of financial problems, as the published financial accounts are historical documents. Leading indicators of financial issues may include unfilled vacancies, unpaid taxes, especially GST, unpaid creditors, minimal inventory and extended lead times. When considering solvency ratios, remember that they are only one part of a jigsaw, and the trend is more important than any one value. See also Ratio Analysis, Ratio, Current and Ratio, Liquidity.