Solvency is when a company is able to pay long-term financial obligations, including interests that have been accrued through debt. Companies that remain solvent have a balance between equity and debt, and can continue to operate in the future. In order for a company to be considered solvent, the value of its total assets must be worth more than the total debt obligations.
In the event that a company issues cash equivalents, equity, or debt, the law requires that the relevant transfer not leave the company insolvent or with insufficient capital. For this reason, a solvency opinion becomes essential to management teams and their boards of directors in avoiding fraudulent transfers and distributions.
- Patents on the verge of expiration, causing competitors to develop similar products
- Changes in regulations, affecting business operations
- Large judgments issued against a company in a lawsuit
Scalar’s experienced team specializes in business valuation and understands the appropriate methodologies to apply in calculating the most accurate solvency opinion.