Question

____________ is the ability of a company to pay its debts as they mature. Liquidity Solvency Financial flexibility Insolvency

Answer 1

Answer:

The answer is Solvency

Explanation:

Merriam-Webster defines solvency as the state of being able to pay all legal debts.

Solvency therefore, is simply a company's ability to meet debts and financial obligations as they mature. A company's solvency is very important because it indicates whether a company will still be in business in future.

Solvency and Liquidity are similar, but the difference is that liquidity is the ability of a business to quickly convert assets to cash in order to meet immediate business needs, while solvency measures a company's ability to meet debts obligations when due.

A company that is insolvent, meaning 'cannot pay off its debts' will often file for bankruptcy.

Answer 2

Answer:

Solvency

Explanation:

Solvency is defined as the ability of a company to meet it's long term financial obligations like having the ability to pay off debts as they mature. Solvency measures if a company is able to pay off it's debt in long term.

Although solvency and liquidity are similar, difference is liquidity is more concerned with paying off short term debts.

A company or firm is said to be solvent when the current assets exceeds current liabilities.