Fundamental Glossary / Debt & Financial Stability
Solvency Ratio
A measure of whether assets, or a defined capital base, can cover obligations over the long term. The formula depends on the context.
Formula
A general version is (net profit after tax + depreciation) / (total liabilities). Insurers use regulatory capital / required capital.
What it means
Solvency is the long-term cousin of liquidity. Liquidity asks about the next year. Solvency asks whether the entity is viable: assets and earning power against all claims.
For an industrial company the word is often used loosely for debt-to-equity or interest cover. For an insurer or a bank it is a regulated number with a legal meaning.
How to read it
A solvent company can still have a liquidity crunch if assets are not cash. A liquid company can still be insolvent if assets at fair value do not cover liabilities. You need both tests.
What to watch
Do not import an insurance solvency ratio into a manufacturing analysis. Name the formula. A single word is not a standard.
This note explains the term. It is not a research recommendation, a target price, or a comment on any security. Ratios and regulatory thresholds change; use the latest filing or circular for a live figure.