Short-term Solvency

Solvency refers to the aptitude of a company to meet its financial responsibilities. Short-term solvency specifically refers to the company’s ability to meet its short-term financial responsibilities. Ratios of short-term solvency focus on determining the company’s ability to avoid short term financial distress. It focuses on availability of money to handle daily health care operations and any other operation that happens within a year. Short-term solvency is important for a company to remain in business since it asserts the ability of an organization to continue operating for the rest of the year, with all short-term debts or expenses being handled effectively. Some of short-term ratios include working capital asset ratio, quick ratio, current gearing ratio, cash ratio and liquidity ratio. These ratios measure the organization ability to cater for short-term expenses that last for less than one year. This in a healthcare environment includes medical supplies, workers payment for private organization and payment of other medical reagents and materials needed in daily operations (Cleverley &Cleverley, 2017).

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