Definition for : Solvency-and-liquidity analysis

In a Solvency-and-liquidity analysis, a business is regarded as a set of Assets and Liabilities, the difference between which represents the Book value of the Equity provided by Shareholders. From this perspective, the Balance sheet lists everything that a company owns and everything that it owes. A Solvency-and-liquidity analysis of the Balance sheet serves three purposes: to measure the Solvency of a company; to measure the liquidity of a company; and as a first step to valuing its Equity in a Bankruptcy scenario.

(See Chapter 4 Capital employed and invested capital of the Vernimmen)

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