Jamaica Observer - Business

CARIBBEAN CORPORATE GOVERNANCE INSTITUTE

The preceding article stated that the board of directors must examine the level of solvency within the company. If a company is insolvent it means that an organisation is either unable to pay its debts, or its liabilities and debts listed in the balance sheet exceed its assets. If the debts don't get paid, then the insolvency will lead either to bankruptcy for individuals and sole traders, or the company will be wound up or liquidated. In addition, the directors' control over the company will cease and the company will cease to trade, its assets will be sold and the proceeds will be distributed among its creditors.

The article concluded by noting that some business commentators regard solvency versus profitability as a false dilemma. They argue that both are important and that companies need to monitor both closely. On the other hand, other experts argue that a company cannot realise its potential profit if it can't remain solvent along the way. They argue that the relative importance of solvency versus profitability depends on the time horizon that is being used. If you are focusing upon a short-term time horizon, then solvency is more important than profitability. However, if you are focusing upon a medium- and longer-term time horizon, then profitability will become relatively more important. read full story