What does financial solvency require?

• A. Sufficient to ensure operations as evidenced by timely payment of obligations - payroll, etc.
• B. The facility must maintain a minimum annual profit margin of 10%
• C. The facility must hold exclusive reserves for debt service
• D. The facility must fund all new projects through loans

Answer: (A)

Solvency is the ability to meet financial obligations as they come due. The clearest sign of this is that operations can continue because essential bills are paid on time, like payroll and other obligations. Profitability matters for long-term health, but it doesn’t by itself prove you can pay what you owe today; you can be profitable on paper and still face cash-flow problems that threaten solvency. Requiring exclusive reserves for debt service or funding every new project with loans changes risk and financing structure, but they aren’t the measure of solvency itself. The core idea is that timely payment of obligations shows you have the resources to keep operating and meet debts as they come due.