What does financial solvency refer to?

Financial solvency refers specifically to the ability of an individual or organization to meet its long-term debts and obligations. This concept is crucial for assessing the overall financial health of a business or individual because it reflects their capacity to continue operations and avoid bankruptcy in the long run. Solvency takes into account assets and liabilities, detailing whether the assets exceed liabilities, which is fundamental for sustainable financial operations.

While the generation of profits is important for a business's success, it primarily relates to short-term operational performance rather than long-term financial stability. Investment in market securities is also a critical part of financial management but does not directly relate to solvency, as it focuses more on asset management rather than the ability to meet debt obligations. Lastly, short-term financial health pertains to liquidity and the ability to cover immediate obligations, which is separate from the concept of solvency that emphasizes long-term debt management and financial viability.