Corporate liquidity: how it differs from solvency
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Automated material · TradeAlmanac editorial deskDraft prepared by a language model from our stored data; not reviewed by an editor.
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A company can be profitable and unable to settle an invoice this week. The distinction between liquidity and solvency explains most sudden defaults.
Solvency
Assets are sufficient to cover obligations. That is a question about the balance sheet as a whole — The balance sheet: what a company owns and what it owes.
Liquidity
Cash is sufficient to meet the obligations falling due now. That is a question of timing.
A company with large but illiquid assets and a major payment next week is solvent and illiquid at the same time.
What to look at
The debt repayment schedule in the notes to the accounts — Notes to the accounts: where the interesting part lives.
The ratio of operating profit to interest expense: the safety margin on servicing.
Access to refinancing: a company that rolls its debt regularly depends on the market's willingness to lend to it. When rates rise that willingness disappears quickly.
The link to rates
A rising key rate hits companies with short debt harder than those with long debt: they have to refinance on new terms — The key rate: how a Bank of Russia decision reaches your portfolio.
Related: Credit ratings: what they assess and why they are not a guarantee.
Draft prepared by a language model from our stored data; not reviewed by an editor.
Model: claude-opus-5
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