Insolvency Risk Definition

Insolvency risk is the chance that a company will be unable to pay its debts when they come due. It is also sometimes called default risk. A company with a high insolvency risk may have trouble getting loans, because lenders are worried that the company will not be able to repay them.

There are several factors that can contribute to a company’s insolvency risk, including poor financial management, too much debt, and an economic downturn. To assess a company’s insolvency risk, analysts look at its financial statements and other public information, as well as its industry and the overall economy.

While all companies have some degree of insolvency risk, some industries are more prone to it than others. For example, companies in the oil and gas industry often have high levels of debt and are affected by volatile commodity prices. As a result, they typically have higher insolvency risks than companies in other industries.