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I disagree, but more importantly, so does s95A of the...

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friendlydwarves

1,641 Posts.

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06/12/18

12:06

Post #: 36770218
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Originally posted by Sojourner: ↑

There is a difference. Solvency is focused the company's ability to cover all their liabilities with their assets, over the long term.

Liquidity is focused on the companies ability to meet its short term liabilities, e.g. by cash, or other assets it can convert quickly into cash.

A company could have liquidity issues but still be solvent. e.g. Company X needs to pay $1m tomorrow, but has only $500k in cash. Its only other asset is shares in another company valued at $100m. It has sold those shares but, it will take two days to settle. So due to the timing of when the liabilities are due and when the proceeds from that sale of shares come through, Company X
has a liquidity event because it doesn't have $.5m to pay its debtor tomorrow, but is solvent (it has $100m worth of assets vs only $1m in debt).

Usually it takes a clusterf of an event to get into this kind of mess, but that's what we have with the RC and shut down of the boiler rooms.

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I disagree, but more importantly, so does s95A of the Corporations Act.

A positive net asset balance does not make one solvent, @Sojourner.

FIG Price at posting: 3.0¢ Sentiment: Sell Disclosure: Not Held
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0 Great analysis

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