02 Oct Liquidity and Solvency Measures – October’s Free MBTN Tutorial
When it comes to assessing the financial health of a business or an individual, two crucial concepts come into play: liquidity and solvency. These two measures provide insights into an entity’s ability to meet its short-term obligations and its long-term financial stability. This month’s free MBTN will delve into what liquidity and solvency mean, why they are essential, and how they are measured.
Liquidity refers to the ease with which an entity can convert its assets into cash or cash-equivalents to meet its short-term financial obligations. Short-term obligations typically include bills, salaries, and other expenses due within the next year. Maintaining good liquidity is crucial for ensuring the day-to-day operations of a business and avoiding insolvency.
Solvency, on the other hand, assesses an entity’s ability to meet its long-term financial obligations, often referred to as its financial leverage. Long-term obligations include loans, bonds, and other liabilities with maturities beyond one year. Maintaining solvency is essential for the sustainability and growth of a business.
MBTN Module Financial Metrics 2 covers common measures of financial risk including:
- Working Capital
- Current Ratio
- Quick Ratio
- Cash Ratio
- Operating Cash Flow Ratio
- Solvency Ratio
- Long-Term Debt to Capitalization Ratio
- Total Debt to Total Assets
- Interest Coverage Ratio
- Cash Flow to Debt Ratio
The free link has expired, but check out this month’s tutorial under the Business Education Resources Blog.
If you find this tutorial valuable and you are faculty at a University or Community College, you might also be interested in our complete catalog of MBTN modules, available for use in academic settings. You can choose any combination of 3 or more modules to suit your needs.
If you are an individual interested in learning more about Financial Statements, Metrics, and Concepts, please consider either of the following packages.
Your Team at MBTN Academy