Discuss that how it is possible that a company is good in solvency but poor in...

Discuss that how it is possible that a company is good in solvency but poor in liquidity? Justify your answer. Explain in 300 or more words.

Expert Solution

Solvency and liquidity both are different and should not be confused between them.

Solvency refers to the capability of the company to meet its financial commitments made for long term.

Whereas liquity of a firm is the ability of the firm to meet its short term obligations or can be understood as how was it can turn assets into cash.

If we see, it is possible that company can be good in solvency but is poor in liquidity. This implies that the company manages to meet its long term goals, is able to systain in future and can make a proper balance in its assets and liabilities to not become insolvent.

But when it comes to liquidity of the compamy, it may be possible that the vusiness it taking time to cover the assets into cash, when there is need of cash to the conpany. But this does not mean company could not arrange finances. A company has many more ways to raise funds.

Thus, it possible that a company good in solvency is poor in maintaining liquidity.

ekkarill92 answered 2 years ago

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