can anyone tell me if liquidity and solvency are the same thing? and if they are different then how is solvency calculated using ratios and the balance sheet?
appreciate any quick replies.
2007-10-03 04:17:07 · 3 answers · asked by Anonymous in Business & Finance ➔ Other - Business & Finance
Liquidity means having more current assets (cash) than current liabilities (outstanding bills)
Solvency means being worth more than your debts.
Most Companies (and individuals) go bust when they run out of cash to service their debts .. having a £300,000 house and a £280,000 Mortgage means you are Solvent, but you can still be made Bankrupt when you can't pay the Mortgage ...
2007-10-06 10:18:53 · answer #1 · answered by Steve B 7 · 0⤊ 0⤋
The two terms are somewhat the same. Solvency is your ability to pay debts and liquidity is your ability to come up with cash. The failure for a business to maintain adequate cash flow is key. Just because a business has assets does not mean that the business can convert those assets to cash to pay suppliers.
Here is an article that might explain liquidity with respect to today's markets: http://www.a2dvoices.com/realitycheck/markets/
2007-10-06 11:57:40 · answer #2 · answered by M D 4 · 0⤊ 0⤋
Liquidity means that your funds are able to be turned into cash pretty easily and you have access to that cash. Being solvent means you have enough funds or cash to pay your expenses and are still able to make a profit so you have a surplus of funds to cover any unforseen expenses. Any money that is left over after expenses can be invested for the future.
2016-04-07 01:58:54 · answer #3 · answered by Anonymous · 0⤊ 0⤋