Question

In: Accounting

Explain what it means when it is stated that a company has a liquidity issue or...

Explain what it means when it is stated that a company has a liquidity issue or problem versus when it has a solvency issue or problem.  

Solutions

Expert Solution

In my words first i will explain about liquidity

liquidity issues or problems means a company has a temporary cash flow problem.

Its assets are greater than its debts, but some assets are illiquid

although in financial books assets are greater than debts, but it can’t meet its current payment requirements.

Solvency issue or problem:

A Company has debt  that it can’t meet through its assets.

i.e. even if it could sell all its assets, it would still be unable to repay its debts.

iquidity Ratios for calculate the assets and liabilities:

  • Current ratio = Current assets / Current liabilities

Quick ratio = (Current assets – Inventories) / Current liabilities??

Solvency Ratio for calculate the assets:

  • Debt to assets = Total debt / Total assets
  • Debt to equity = Total debt / Total equity

Interest coverage ratio = Operating income (or EBIT) / Interest expenses

If you have any doubts ask me..

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

(a) Explain what it means when a good has an inelastic price elasticity of demand. (b)...
(a) Explain what it means when a good has an inelastic price elasticity of demand. (b) Explain what it means when a good has an elastic price elasticity of demand. (a) What are the various magnitudes of elasticity? (b) How does quantity demanded change relative to price when there is a change in price for each point on the spectrum?
a) Explain 'hedging'. b) Explain the financial reporting issue that arises when a company enters into...
a) Explain 'hedging'. b) Explain the financial reporting issue that arises when a company enters into foreign currency transactions. Provide examples of various foreign currency transactions and indicate whether each transaction involves the initial recognition of a monetary item or non-monetary item or both. c) Describe the indicators used in determining the functional currency of an entity. d) Explain what is meant by a spot exchange rate, closing exchange rate, and forward exchange rate. e) What is meant by foreign...
It has been stated that ‘Time has value.’ What does this mean when we are evaluating...
It has been stated that ‘Time has value.’ What does this mean when we are evaluating a series of cash flows?
Holdup Bank has an issue of preferred stock with a stated dividend of $7 that just...
Holdup Bank has an issue of preferred stock with a stated dividend of $7 that just sold for $87 per share. What is the bank’s cost of preferred ?
I. Company A issues bonds with a par value of $870,000 on their stated issue date....
I. Company A issues bonds with a par value of $870,000 on their stated issue date. The bonds mature in five years and pay 8% annual interest in semiannual payments. Assume: On the issue date, the annual market rate for the bonds is 6%. What is the amount of each semiannual interest payment for these bonds? _________________ Compute the price of the bonds as of their issue date using either the factors tables or excel formula. _________________ Prepare the journal...
I. Company A issues bonds with a par value of $870,000 on their stated issue date....
I. Company A issues bonds with a par value of $870,000 on their stated issue date. The bonds mature in five years and pay 8% annual interest in semiannual payments. Assume: On the issue date, the annual market rate for the bonds is 10%. What is the amount of each semiannual interest payment for these bonds? _________________ Compute the price of the bonds as of their issue date using either the factor tables or excel formula.    _________________ Prepare the journal...
Bringham Company issues bonds with a par value of $630,000 on their stated issue date. The...
Bringham Company issues bonds with a par value of $630,000 on their stated issue date. The bonds mature in 7 years and pay 8% annual interest in semiannual payments. On the issue date, the annual market rate for the bonds is 10%. (Table B.1, Table B.2, Table B.3, and Table B.4) (Use appropriate factor(s) from the tables provided.) 1. What is the amount of each semiannual interest payment for these bonds? 2. How many semiannual interest payments will be made...
What are different classifications of money? Define liquidity. What aspects affect liquidity? Explain the functions of...
What are different classifications of money? Define liquidity. What aspects affect liquidity? Explain the functions of money. Without money, describe the difficulties of trading. Discuss the evolution of payments system. What are the functions of the financial system? What are the types of financial markets? Types of financial institutions? Define financial intermediation.
In general in a company when Is it a good time to issue stocks? What factors...
In general in a company when Is it a good time to issue stocks? What factors favor issuing and what factors do not? What should be taken into account? How will investors and the market react to the large size of the offering? Would the series of smaller issues be a better strategy? How does financing with corporate bonds typically differ from a bank loan? What are the major uncertainties that a firm faces when it issues securities?
Holdup Bank has an issue of preferred stock with a $8 stated dividend that just sold...
Holdup Bank has an issue of preferred stock with a $8 stated dividend that just sold for $89 per share. What is the bank's cost of preferred stock? Options: 8.00% 9.35% 9.44% 8.63% 8.99%
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT