How to Use Accounting Information to Investigate a Business' Solvency
How to Use Accounting Information to Investigate a Business' Solvency
Obtain a company's balance sheet and income statement.
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Locate the different totals and subtotals on the two financial statements.
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Use profitability ratios to see how efficient and productive a business is and how easily its cash flows.
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Use liquidity ratios to see how easily a business is able to pay off its short-term debts and respond to cash needs.
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Use solvency ratios to see how easily a business is able to pay off its long-term debts and other obligations.
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