Difference between terms liquidity, solvency and liquidity of assets

There is a difference between the related terms of liquidity, solvency and liquidity of assets.   Liquidity Liquidity is the entity´s ability to convert its assets into cash for the purpose to settle its obligations, ideally with the lowest possible transaction costs. (14) More here.

Net working capital

Net working capital is obtained by subtracting short-term borrowings from (gross) working capital.   Calculation formula working capital - short-term borrowings = current assets - short-term borrowings = long-term debt capital + equity – non-current assets   General interpretati

The indicator of overcapitalization / undercapitalization

The indicator of overcapitalization / undercapitalization is one of the indicators of indebtedness and financial structure and possibly also liquidity. The ratio indicates the proportion in which are fixed assets financed by long-term funds. The analysis provides similar result as the analysi


Liquidity is the entity´s ability to convert its assets into cash for the purpose to settle its obligations, ideally with the lowest possible transaction costs. (14) Liquidity is not the same as solvency. Financial analysis deals with the following liquidity indicators.

Growth rate

Growth rate is the rate by which the considered variable (revenues, expenses, dividends, investment, GDP etc.) increase either annually or over the considered period of time. It is usually derived from past data and can be calculated by a number of methods. None of the calculation methods is correct

Operating ratio

Operating ratio is one of profitability indicators. Its formula can be easily derived from the profit margin formula (Return on sales). It expresses how much cost is incurred for each unit of sales.   Calculation formula     Comparison it is particularly suitable for compari

Advantages and disadvantages of financing by equity and debt

In business world, debt financing is paradoxically cheaper than from equity, because: the cost of debt is interest, which is lower than the dividend (profit sharing) paid to shareholders – it is mainly due to the fact that equity holders are satisfied in case of liquidation either after deb

Financial leverage

Financial leverage is the ratio of debt capital to total assets, i.e. the formula is the same as for the Debt ratio. The effect of financial leverage is one of the effects causing the fact that the use of debt capital can be more advantageous than equity. It has a positive effect in the case that r


Solvency is the ability to pay the obligations on time. (14) Solvency is not the same as liquidity.   Solvency ratio / Cash-flow ratio belongs to the group of indicators of liquidity and financial structure/indebtedness and expresses the entity's ability to meet all its liabilities (both

Compound annual growth rate (CAGR)

Compound annual growth rate (CAGR) is method used to calculate annual grow rate from time series. The result of CAGR is interpreted as the smoothed annualized growth rate achieved during the considered time horizon. It therefore represents the rate at which the variable would have grown if the rat

Group of financial analysis indicators

The series describes basic groups of financial analysis indicators.  In addition to this series, you can use this Overview of financial analysis formulas.  

Value added

Value added (VA) is one of profitability differential indicators and it shows the value that the entity has added to external inputs. Value added is obtained as a difference between revenues from sales of goods/services and costs for inputs (usually direct costs). There are two alternatives for val

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