On The Company Solvency Evaluation

Debt-paying ability, Justas its name implies, is the ability of a corporation to pay for its due debts, which is an important part of a firm's financial ability. The evaluation of firm's debt paying ability is related not only to firm's develop rent, but also to the safety and risk of creditors' rights.This paper systematically studies the theories and methods about firms' debt-paying ability and its evaluation, and in particular deeply analyzes and probes into the related factors influencing firms' debt-paying ability. Three parts are included in this paper.Part one. The evaluation of short-term debt-paying ability.This part, based on the eorvcise introduction of ere indicators of debt-paying ability, emphatically studies the factors which affect firms' debt-paying ability and the relationship between these factors and debt-paying ability. The core contewts are as follows.1.Basic financial indicators evaluating short-term debt-paying ability. This section introduces several basic indicators which are currently used to evaluate debt-paying ability, such as current ratio, quick ratio, cash ractio and eash-flow ratio, and concisely explains their basic meanings and effects on the evaluation of debt-paying ability.2.Amounting policy and short-term debt-paying ability. Here are author analyzes the influence of are selection of accounting polices on eve indicators evaluating short-term debt-paying ability, from the points of confirming and measuring principles and methods of floating assets, for example short-term investment, receivables, inventories, etc, and by calculating demonstrates that these indicators are various auording to different accounting principles and meetiods. This points out that when evaluating, the evaluators should pay full attention to firm's accounting policies and their ditfenerce and variety in various corporations and periods.3.Asset quality and short-term debt-paying ability. The influence of asset quality on short-term debt-paying ability is analyzed here. Then the author makes an analysis and demons tration of how to evaluate the influence in public corporations, using public corporations' materials.4.Asset cyciality and short-tem debt-paying ability. The core of this section is the relations between asset liquidity and short-term debt-paying ability. From he points of current retie and payabiliting in cash, it shows the decisive meaning of asset liquidity to short-term debt-paying ability. Through establishing a mathematic mode using current ratio and net cash flow as independent variables, while asset cycling rate as function, the author tally demonstrates the internal relations between asset cyciality and short-term debt-paying ability.Part two the evaluation of long-term debt-paying ability.Based on the indicators of debt-asset ratio and times-interest-earned ratio, the author analyzes related factors which affect firms' long-term debt-paying ability, and the internal relations between these factors and long-term debt-paying ability. This part indudes four sections:1.Basic financial indicators evaluating long-term debt-paying ability. This section systematically introduces the contents and calculating meehods of debt-asset ratio and times-interest-earned ratio, and especially defines the extrinsic scopes of the two indicators reasorlably.2.Accounting policy and long term debt-paying ability. From the aspects of investment, inventories, fixed assets, the author logically policies on the indicators of evaluating long-term debt-paying ability, and fare her shows that these indictors. This prompts evaluators to care of the accounting policies used in corporations.3.Asset quality and long-term debt-paying ability. The relations between asset quality and long-term debt-paying ability are studies in this section from the aspects of long-term investment, fixed assets, formless assets, and so on. The author employing logical analysis means demonstrates that asset quality is an important factor in deciding firms' long-term debt-paying ability, then poi...