What does 'financial solvency' indicate?

Financial solvency refers to an individual or organization's ability to meet its long-term financial obligations. This concept emphasizes the importance of being able to cover debts and other financial commitments that extend over a longer period, as opposed to merely managing daily expenses or having a sufficient cash flow in the short term.

Being financially solvent means that one has a solid financial foundation, often gauged by comparing total assets to total liabilities. If total assets outweigh liabilities, an individual or organization is considered solvent, as it is capable of fulfilling its long-range financial responsibilities. This is critical for maintaining good credit ratings and securing future loans.

The other aspects mentioned, such as handling daily expenses, emergency savings requirements, and investment policies, do not specifically encapsulate the entire picture of financial solvency, which focuses on the long-term view of financial health. Hence, the emphasis on meeting long-term obligations accurately defines financial solvency.