Overview
Financial solvency and liquidity are critical concepts in finance that help assess a company's ability to meet its obligations. Solvency focuses on long-term financial health, while liquidity emphasizes short-term cash flow management. Understanding these concepts is essential for making informed bu...
Key Terms
Example: A company is solvent if its total assets exceed its total liabilities.
Example: Cash is the most liquid asset, while real estate is less liquid.
Example: Current Ratio = Current Assets / Current Liabilities.
Example: Quick Ratio = (Current Assets - Inventory) / Current Liabilities.
Example: The balance sheet provides a snapshot of a company's financial position at a specific time.
Example: Positive cash flow indicates that a company is generating more cash than it is spending.