The solvency ratio is a financial metric used to assess a company's ability to meet its long-term debts and obligations. It is calculated by dividing a company's total assets by its total liabilities. A higher solvency ratio indicates a stronger financial position, suggesting that the company can easily cover its debts. Investors and creditors often analyze the solvency ratio to evaluate the risk associated with lending money or investing in a business. A solvency ratio above 20% is generally considered healthy, while a ratio below this threshold may raise concerns about the company's financial stability and ability to sustain operations over time.