When you’re analysing a company, your first concern has to be whether the company is still going to be trading next year. What are the chances of it going into administration? If it looks likely, then doing any further analysis seems a waste of time! So you start financial analysis by looking at a company’s solvency, as this gives you an indication of whether or not it has a long-term future.
A business is solvent when:
I’ll look at solvency on three timescales: