Solvency
Long-term ability to meet all financial obligations.
Real World
In 2019 Thomas Cook was technically profitable on some quarters yet collapsed because long-term debt of £1.7bn overwhelmed its asset base — a classic solvency failure despite short-term trading.
Exam Focus
Distinguish solvency (long-term debt coverage) from liquidity (short-term cash) — mixing them up is one of the most penalised errors.
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