Author(s): Ravikant Agarwal and Ashutosh Vashishtha
Solvency is an important characteristic of financial stability of any corporate entity. This study aims to empirically investigate the financial and non – financial factors affecting solvency in India. The study used descriptive statistics and t – test to analyze the factors that impact solvency. The results of this study emphasize the importance and significance of financial factors such as debt equity ratio, total outside liabilities/adjusted tangible net worth, interest coverage ratio, debt service coverage ratio, current ratio, quick ratio, net income/total assets ratio, net working capital/total assets, operating income /total assets, retained earnings/total assets, book value of equity/total liabilities, sales/total assets as well as non – financial factors such as size of the company (in terms of revenue), educational qualification & professional experience of the promoters of a company, role of the credit rating agencies, sudden politico-economic decisions, role of regulatory authorities like Competition Commission of India, SEBI, RBI etc., role of management committee. Overall, this study offers valuable insights into the causes and predictors of financial distress and insolvency and suggests steps to mitigate the risks to ensure solvency over long term.