when studying solvency it is also important to be aware of certain measures used for managing liquidity solvency and liquidity are two different things but it is often wise to analyze them together particularly when a company is insolvent a company can be insolvent and still produce regular cash flow as well as steady levels of working capital 
special considerations solvency ratiosassets minus liabilities is the quickest way to assess a company s solvency the solvency ratio calculates net income depreciation and amortization total liabilities this ratio is commonly used first when building out a solvency analysis there are also other ratios that can help to more deeply analyze a company s solvency the interest coverage ratio divides operating income by interest expense to show a company s ability to pay the interest on its debt a higher interest coverage ratio indicates greater solvency the debt to assets ratio divides a company s debt by the value of its assets to provide indications of capital structure and solvency health other ratios that may be analyzed when considering solvency include solvency ratio levels vary by industry so it is important to understand what constitutes a good ratio for the company before drawing conclusions from the ratio calculations ratios that suggest lower solvency than the industry average could raise a flag or suggest financial problems on the horizon investopedia dennis madambasolvency vs liquiditywhile solvency represents a company s ability to meet all of its financial obligations generally the sum of its liabilities liquidity represents a company s ability to meet its short term obligations this is why it can be especially important to check a company s liquidity levels if it has a negative book value one of the easiest and quickest ways to check on liquidity is by subtracting short term liabilities from short term assets this is also the calculation for working capital which shows how much money a company has readily available to pay its upcoming bills short term assets and short term liabilities are those that have a one year time frame for example cash and equivalents is a common short term asset short term accounts payable is a common short term liability a company can survive with insolvency for a reasonable time period but a company cannot survive without liquidity some interesting ratios that can be helpful in more deeply assessing liquidity can include 