Liquidity and Solvency (1 Viewer)

[PakMan]

Hey everyone,

Just wondering what is the difference between liquidity and solvency. From the textbook they seem very similar, almost the same.

Also, what is the desired solvency percentage?

Thanks in advance!

 

[Pace_T]

solvency:
ability to pay back its long term debts

liquidity:
abiliy to pay back its short term debts

preferred ratio for solvency:

small businesses: 1:2 (that is, debt:equity = 1:2)

larger organisations run above 1:1

thats what i got in my notes

 

[sk8ie_boi]

Liquidty: Shows the ability of the business to pay off its debts as they fall due. Helps to determine the short-term financial stability of the business.

Industry average = 2.5:1

Solvency: Refers to the firm's ability to repay amounts that have been used for capital investment. Relates to how heavily the firm relies on debt finance.

Industry average = 0.5:1

But in simple terms, just like wat 'Pace T' said: ability to pay off short or long term debts...

 

[hYperTrOphY]

Liquidty: Shows the ability of the business to pay off its debts as they fall due. Helps to determine the short-term financial stability of the business.

Industry average = 2.5:1

Solvency: Refers to the firm's ability to repay amounts that have been used for capital investment. Relates to how heavily the firm relies on debt finance.

Industry average = 0.5:1

But in simple terms, just like wat 'Pace T' said: ability to pay off short or long term debts...

How can you give an industry average if you haven't specified an industry?

 

[goan_crazy]

How can you give an industry average if you haven't specified an industry?

they normally tell u the industry average in exams if u need it

 

[sk8ie_boi]

How can you give an industry average if you haven't specified an industry?

But But But .. Dude, thats in your notes!! .. from Mel??

Haha shuddup I know, I was just giving examples.