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Guide To Analysing Companies, Fifth Edition by Bob Vause

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8 Working capital and liquidity

T HIS CHAPTER CONCENTRATES on the ways of assessing the short-term financial position and health of a company. Although the terms solvency and liquidity are often used to refer to the same thing, each focuses on a different aspect of financial viability. Solvency (discussed in Chapter 9) is a measure of the ability of a company to meet its various financial obligations as they fall due, whether they are loan repayments or creditors’ invoices. Liquidity is directly related to cash flows and the nature of a company’s short-term assets; that is, whether there is an appropriate amount of cash on hand or readily available. You may have $1m invested in stocks and shares but not enough cash in your pocket to buy a ...

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