Definition for : Solvency

Solvency reflects the ability of a company to honour its commitments in the event of Liquidation, i.e. if its operations are wound up and Assets are put up for sale. A company may be regarded as Insolvent once its Shareholders' equity turns negative. This means that it owes more than it owns.
(See Chapters 4 and 14 of the Vernimmen)
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