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Debt Relief – Insolvency – Bankruptcy Information » Insolvency » What is the difference between liquidity and insolvency?

What is the difference between liquidity and insolvency?

I know that solvency means you can’t pay off your debts, but it doesn’t necessarily mean that your liabilities are greater than your assets. This is because companies like Coke (KO), pepsi, and others have much higher liabilities than assets, but since they are cash cows, they can easily pay back their debts. So what does solvency really mean?
and since liquidity seems to mean that you can sell off enough of your assets to pay back your debt, then it just seems like a way to rate how solvent you are. It seems like if you are insolvent, then you are illiquid (or else, you would have just sold enough assets to cover the debt).

But it seems like if you are illiquid, and you don’t have to be insolvent because you can borrow short-term to cover your debt instead of selling all of your assets.

PLEASE READ THIS SECTION AND TELL ME IF I AM WRONG< AND PLEASE GIVE A GOOD PRECISE DEFINITION AND DISTINCTION BETWEEN liq and solv.

thanks

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One Response to "What is the difference between liquidity and insolvency?"

  1. Wayne S says:
    Solvency relates to the all of a company’s assets and their ability to sell them and be able to pay all the debts and have money left over. Liquidity pertains to the ability to pay current payments on their debt with the cash they have on hand without.

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