Solvency ratios are primarily used to assess what aspect of a company?

Solvency ratios are essential financial metrics used to evaluate a company's ability to meet its long-term financial obligations. They focus on the relationship between the company's total assets and total liabilities, providing insight into whether the firm has enough assets to cover its debts as they come due. This assessment is crucial for stakeholders, including creditors and investors, as it indicates the long-term viability and financial health of the company.

Understanding solvency ratios allows for a deeper analysis of the company's financial structure. A higher solvency ratio typically suggests that a company is in a strong position to sustain its operations through financial downturns, repay its liabilities, and continue to thrive in the long term. Consequently, this measure is fundamental for evaluating a company's financial stability and potential risk of bankruptcy, making it a key indicator of long-term viability rather than operational efficiency, asset market value, or marketing effectiveness.