Question

How are net working capital, liquidity, insolvency and risk related?

Answer 1

Net working capital- is the difference between the current assets and current liabilities of a company.It is used to measure short term liquidity which is the ability of the company to meet short term obligations

Liquidity- refers to how easily an asset can be converted into cash without affecting its price.

Insolvency-refers to when a company does not have enough assets to pay off all their debts.

Risk-is the possibility of losing an investment due to uncertainty/deviation from an expected outcome.

These are all related in that net working capital measures liquidity,and liquidity determines whether a company is solvent or insolvent(unable to meet its obligations),in which case risk occurs which is the possibility of losing all investments.

Answer 2

How are net working capital, liquidity, insolvency and risk related?

https://in.answers.yahoo.com/question/index?qid=20100607005502AAWPf0H

 net working capital = total assets - current liabilities.

  In a financial year, you must have significant assets for functioning of your your business, the current liabilities are regarded as the cost necessary for operation of the same.

So when you fail to have liabilities equal or more than assets, your business undergoes insolvency risk.

Especially the net working capital being negative gives rise to insolvency. Moreover having minimal assets, the risk of liquidity arise.

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