Coleman Luggage has liabilities of $870,000 that the company must pay back by the end of the month. It currently has a cash bala
nce of $175,000 and inventories totaling $220,000. Other short-term assets equal $85,000. This information helps in understanding that Coleman Luggage has solvency.
Liquidity or Solvency is the ability of a business to pay its debt(both in short term and long term).
In the question, Coleman Luggage has a liability of 879,000 and the total current assets(which can be used to offset the liability) are cash balance of $175,000 + inventories of $220,000 + Other short-term assets of $85,000 = $480,000.
To know its solvency (net working capital) = Asset - liability
$480,000-870,000
= -$390,000.
Coleman Luggage has a low solvency because his asset cannot cover all his liabilities. His asset is less than his liabilities
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