Solvency

Solvency indicates whether a business or investor can reliably service debt repayment from equity and operational cash flow over time. In commercial real estate, this is critical: a property portfolio must generate sufficient income to sustainably cover interest, principal repayment, and maintenance.

Two key metrics are commonly used:

• Solvency ratio (equity divided by total debt): shows what portion of assets is financed with owner's capital
• Debt-to-assets ratio (total liabilities divided by total assets): measures the balance between borrowing and holdings

Strong solvency preserves financial flexibility and improves access to credit for portfolio growth or acquisitions.