Quote:
Originally Posted by aquaswim47
Official dictionary definition: Insolvency - When a person or organization cannot meet its financial obligations when they are due, or when assets are smaller than liabilities.
Insolvent is when a company has less assets than liabilities (at least that's the academic definition of insolvency). However, the company can continue operating if it has liquidity; insolvent is a bad situation to be in because if something happens, you won't be able to pay existing bills. My definition of insolvency is when liabilities exceed assets. I consider the ability to pay current debt as liquidity.
It's the other current liabilities that has me concerned. Are those long-term liabilities that became current? The company is currently insolvent and is working its way towards solvency. It is my opinion that they will not make it.
I checked the financial statements (balance sheet) on Yahoo Finance and Scottrade and the company has excess current liabilities over current assets and excess total liabilities over total assets. I also checked the SEC filing and I don't think you read it right. It has growing net income and growing net operating cash flows. However, the company has been paying off less debt each year (while not expanding its operations). That's why it is my opinion that it is a company that will not get out of insolvency (liabilities exceeds assets). I don't believe there will be a day that this company will become solvent (assets exceed liabilities). They seem like they're losing their liquidity, since they have nearly $140 million in other current liabilities.
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The dictionary defines insolvent as follows: not solvent; unable to satisfy creditors or discharge liabilities, either because liabilities exceed assets or because of inability to pay debts as they mature.
The key here is that is a conditional situation. Either they can not meet their obligations due to their assets being less than liabilities or becasue they can't pay their debts for some other reason. Now since they
can meet debt obligations, the situation of having less total assets than total liabilities des not equal insolvency. Liquidity and insolvency are mutually exclusive events.
The last reported results of the company are reporting financial data from Sep 30th 2005 to Sep 30th 2006. (See link at the bottom to view the 10-Q) I'll be using the data from there below: Both figures are annual.
Their opperatng income is $181,291,000
Their current liabilities are $128,991,000
The current liabilities include the current portion of long term debt that is comming due within one year of the report.
Fom opperatng income alone they have enough to cover their current financial obligations.
(I don't use Yahoo for the reason they often have incorrect numbers. You can get the statements submitted to the SEC at their website. Those statements are exactly what they are reporting.
Here's CHH's last Quarterly report. I'm not saying yo're looking at the wrong numbers, but yahoo does not theaccurate numbers reported sometimes. The SEC always does because the documents you're looking at are the same ones the company gave to the SEC for rportng puroses.)