Solvency Solvency is a firm's ability to pay debt and obligations by using its cash flows. A firm is solvent if it generates more cash than it consumes; it has a zero or positive net cash flow. Cash flow represents the cash outlays and receipts over a given period of time. A positive total cash flow is generally necessary for the survival of the firm; the alterative is to draw down any cash reserve in the bank, sell additional equity in the business, or borrow additional cash. Net cash flow is a function of three sources of cash: operations, investing, and financing. In the short run, one source may off-set negative cash flow from another source. However, the long-run solvency of the business requires positive cash flow from operations because investing and financing activities, alone, cannot generate cash indefinitely. 291,315 300,000 238,796 218,761 200,000 100,000 Cash Flow Levels 176,020 20,570,838 2017 NET CASH FLOW: OPERATIONS NET CASH FLOW: INVESTING NET CASH FLOW: FINANCING Net In ease in Cuivalents 2018 (100,000) 2019 (200,000) (300,000) (140,439,389) (146(040)291) (363,060) (400,000)