The basic concepts of liquidity, solvency, and profitability

The basic concepts of liquidity, solvency, and profitability in a company are things that will always be present in its operations. The concept of liquidity is related to managing liquidity either as cash or easy cash assets, related to managing and paying off short-term corporate debts, the ability of the company in managing liquidity and managing short-term debt repayment is called liquid (able) and illiid (unable) .

The concept of solvency relates to managing company assets in long-term and short-term operations, especially those relating to paying off short-term and long-term obligations, the company's ability to pay off liabilities (solvables) and the company's inability to repay obligations (insolvable), the concept of solvency in this company will applies when the company no longer operates, the company is liquidated or bankrupt according to a court decision.

The concept of profitability is related to the company's ability to generate profits and profits within a certain period of business capital owned by the company. The concepts of liquidity, solvency, and profitability will and apply to companies of all types, both micro small scale, medium scale, large scale. This means that this concept will always be implemented by the company in its operations whenever and wherever.

These three concepts can be seen from the description of the financial statements namely on the balance sheet and income statement of the company, the balance sheet can be seen sources of funding (short-term debt, long-term debt, own capital), use of funds (current assets, fixed assets, other assets ), wealth structure (comparison of current assets with fixed assets), financial structure (comparison between foreign capital and own capital), capital structure of the company (comparison of long-term debt to own capital), while the income statement can be seen from the amount of income from operations company, cost of goods or manufacturing price, costs incurred in the company's operations (interest expense, tax) and net profit earned by the company