What is the difference between solvency and liquidity in business?

Ninfa Asby: They both describe two different cash-flow related characteristics of a business.Solvency means that a business can pay its bills.Liquidity is a measure of a business's ability to have cash ready (as opposed to cash tied up in investments and inventory).A liquid business is more likely to be solvent than a non-liquid business. However, not all businesses with liquid assets are solvent, and not all solvent businesses have strong liquidity....Show more

Dannie Briseno: Cash reserve ratio only involves cash and cash equivalents. The Federal reserve uses something like this to help regulate monetary policy in the US. The higher the required reserve, the less banks are able to loan out. The less they loan out, the less economic activity there is in the country. (Cash reserves have a multiplier effect in the economy. When a bank loans out $1, it multiplies into many dollars as a result of the next several users down the line. The Federal Reserve can stimulate t! he economy by lowering the reserve.) Statutry liquidity ratios act as a second safety net. "Statutory" means that the ratio has been enacted as a law or regulation. "Liquidity" refers to the types of assets required in reserve. They will often include cash, cash equivalents, receivables, investments, and other short-term assets that can be made liquid in a short time without a substantial penalty. Cash equivalents are usually anything that can be turned into cash in 90 days or less. Short term assets are usually turned into cash in a year or less....Show more