Solvency
Short definition
Solvency is assets being worth enough, economically, to cover liabilities. It is a stock concept different from liquidity; it does not solve cash timing.
Detailed explanation
Book equity may not proxy economic solvency under inflation and goodwill. Company and insolvency law define technical negative equity and inability-to-pay separately.
A liquidity crisis can exist with solvency; solvency breaks slowly, liquidity fast. Together they lock in default.
Why it matters for the CFO
The credit committee looks at solvency, treasury at liquidity. Treating one as “solid” and ignoring the other is the classic miss.
How to read it
Market equity below debt is a market solvency signal. It can happen while book equity is still positive.
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Definitions are educational. They are not investment, credit or tax advice.