Quote:
Originally Posted by Bend it like Bourgeois
I don't get either of those statements but they sound smart. What do you mean?
There very much is a liquidity problem, though I suppose the underlying cause was a few trillion in debt that can't be repaid, which is maybe what you mean.
|
SOLVENCY: Ability to pay debts.
LIQUIDITY: Ability to convert assets into cash.
What does most businesses in is cash flow issues. You can have a money losing business, but so long as you are able to make you current obligations, you can continue operating. On the other hand, you can have a very profitable business, but if you aren't able to pay all of your current obligations, your creditors will shut you down. There is a famous B-school case of a department store chain that went bankrupt in the early '70s even though they had a positive income statement. Problem was all of their money was tied up in inventory and they got caught in a situation of not being able to pay their short term debts.