A company is technically insolvent when
A) cash outflows in a given period are greater than cash inflows.
B) earnings before interest payments are less than the interest payments.
C) it lacks the necessary liquidity to promptly pay its current debt obligations.
D) current ratio is less than 1.0.

Question

Quizplus · Accepted Answer

Technically insolvency occurs when a company is unable to meet its current debt obligations with its current assets. The current ratio may be less than 1.0, but this alone does not render a company insolvent, as it depends on the nature of its operations and how its assets are used. Choices A and B refer to cash flow issues, while insolvency is defined in terms of current debt obligations.

A Company Is Technically Insolvent When