Solvency
Long-term ability to meet all financial obligations.
Formula
Debt-to-Equity Ratio = Total Debt / Total Equity
Real World
Carillion, the UK construction giant, appeared profitable for years but collapsed in 2018 because mounting long-term debts made it insolvent — unable to meet obligations even though it was still trading.
Exam Focus
Distinguish solvency (long-term) from liquidity (short-term) explicitly in answers — confusing the two is a common mark-losing error.
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