Is a company solvent or insolvent? I have being reading this “solvency” thing appearing in the mass media. A company is solvent if its asset value is more than its liabilities. Sounds great. The only problem is: What is the “value” of its assets? What is it based on? Is it based on the last transaction in the open market? Is it based on some theoretical calculation like present value discounted? What happens if most assets held by a company have no buyer? If there is no buyer, the company cannot sell its assets to meet its liabilities. If the assets cannot be sold to anyone, the “value” of its assets is practically nil. Thus a company that is solvent can suddenly become insolvent just because its assets have no liquidity. That is what is happening currently to many financial institutions in which its assets are illiquid and in this present day context these will be toxic waste like CDOs and MBS.  So the next time the spokesman of a company say that the company is “solvent,” think again it can be insolvent the next day. Besides fund managers, the next person not to believe in will be spokespersons.