Solvency in the construction industry
‘Solvency’ describes the ability of a company to service its debts. In very simple terms, to be solvent, the value of a company’s assets must be greater than the sum of its debts.
A company that is not solvent can still continue to operate in the short term, for example, if the company takes on debt with the intention of expanding their operations and growing business. In the short term, they may be unable to service the debt from their existing assets. However, the creditor assumes that increased revenue from the investment will enable the company to service its debts in the longer-term.
Short-term solvency can be measured by the current ratio – calculated by dividing current assets by current liabilities. The solvency ratio can be used to measure longer-term solvency – calculated by dividing the company’s net income + depreciation by its long term and short term liabilities.
In the UK, an insolvent company is one that is unable to service its debts. Insolvent companies may be put into 'liquidation' or 'administration'.
For more information, see Insolvency in the construction industry.
Solvency is not the same as liquidity, which refers to the availability of liquid assets (i.e. cash), and how easy it is for other assets to be converted to cash.
[edit] Related articles on Designing Buildings Wiki
Featured articles and news
Change of use legislation breaths new life into buildings
A run down on Class MA of the General Permitted Development Order.
Solar generation in the historic environment
Success requires understanding each site in detail.
Level 6 Design, Construction and Management BSc
CIOB launches first-ever degree programme to develop the next generation of construction leaders.
Open for business as of April, with its 2026 prospectus and new pipeline of housing schemes.
The operational value of workforce health
Keeping projects moving. Incorporating unplanned absence and the importance of health, in operations.
A carbon case for indigenous slate
UK slate can offer clear embodied carbon advantages.
Costs and insolvencies mount for SMEs, despite growth
Construction sector under insolvency and wage bill pressure in part linked to National Insurance, says report.
The place for vitrified clay pipes in modern infrastructure
Why vitrified clay pipes are reclaiming their role in built projects.
Research by construction PR consultancy LMC published.
Roles and responsibilities of domestic clients
ACA Safety in Construction guide for domestic clients.
Fire door compliance in UK commercial buildings
Architect and manufacturer gives their low down.
The new towns and strategic environmental assessments
12 locations of the New Towns Taskforce reduced to 7 within the new towns draft programme and open consultation.
Buildings that changed the future of architecture. Book review.