What does solvency indicate about a business?

Solvency is a financial metric that specifically relates to a business's capacity to meet its long-term financial obligations. When a business is solvent, it has sufficient assets to cover its liabilities, which means it can continue operating without facing cash flow issues that would prevent it from settling debts as they come due. This aspect of financial health is critical for creditors and investors as it reassures them that the business can sustain itself over a longer time frame and is not at immediate risk of bankruptcy.

The other options focus on different aspects of business performance. Profitability pertains to the business's ability to generate income, which is not the same as its ability to pay off debts. Marketing strategies relate to how effectively a business can promote and sell its products or services, impacting revenues but not directly indicating solvency. Production efficiency concerns how well a company utilizes its resources to produce goods or services, which affects costs but does not fundamentally measure its long-term financial stability. These distinctions clarify why solvency is specifically tied to long-term financial commitments rather than profitability, marketing effectiveness, or production efficiency.