Solvency is a form of ability that shows the capability of company to cope with its long-term fixed expenses and business

sustainability. In other word, solvency helps the management for accomplishing the desires of stakeholders related to growth and long-term expansion. Solvency also exhibits the paying capability of the company. Balance sheet represents the net worth, working capital, funds contributed by lenders and owners and financial strength of a company that provides information related to its solvency level. Instead of this information, followings are some important part of balance sheet that allows the users for judging the solvency of a company:

Current Assets: A current asset is an important aspect of companies’ balance sheet that shows cash in hand, sellable securities that could be converted by management into cash without losing time. It helps to know about the actual wealth of organization that would be useful for operating the existing business in upcoming future. It indicates the solvency level of company that is considerable point for shareholders and investors.

Current Liabilities: It includes liabilities of the company without any interest. These liabilities are arisen due to day to day operational activities of companies in related market. Most of the companies make different accounts on the basis of number of vendors. More liabilities show the less availability of cash. Hence, it helps to know the future of a company with its ability to pay its financial obligation in short-term.

Current Ratio: It is also an important part of balance sheet that is used for sizing up the current assets of a company in context of current liabilities. It helps to determine solvency position of the firm by determining effectiveness in asset management.

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