Solvency Risk

Whether you’re an investor or a business owner, solvency is defined as having enough value in the form of your assets to cover all of your liabilities. By subtracting your liabilities from the value of your assets you calculate the amount of equity you have built up. Banks measure this by what is called your loan to value ratio (LVR). The lower your LVR or the greater your equity, the better off you are.

If your equity becomes negative you are said to be insolvent and bankruptcy may be just around the corner if you can’t generate enough cash flow income to meet your debt requirements in a timely manner.

It is important to recognise that asset values can rise and fall. Therefore monitoring the value of your assets, ensuring your LVR has a satisfactory margin and that your cash flow is sufficient to meet all your obligations are important aspects of managing against the risk of insolvency.

Get The Latest News *disabled

Brisbane Office

Level 11 / 300 Ann St
Brisbane, 4001
Ph: (07) 3223 6000
Fax: (07) 3012 8399

Strathpine Office

Unit 3, 27 South Pine Rd
Brendale, 4500
Ph: (07) 3490 9988
Fax: (07) 3490 9984

Caboolture Office

Level 1, 11-13 Bertha St
Caboolture, 4510
Ph: (07) 5428 9555
Fax: (07) 5498 9320