What does it mean when a company is considered insolvent?

When a company is considered insolvent, it means that it cannot pay its debts as they come due. This financial state indicates a significant issue within the company, as it lacks the necessary liquidity to meet its short-term obligations, which can lead to bankruptcy or reorganization.

Insolvency can be a critical indicator of a company's financial health and stability, as it suggests that there are problems with cash flow or that the company's liabilities exceed its assets in a practical sense. This status prompts creditors and investors to reassess the company's viability and often leads to discussions about restructuring or other remedies.

Other choices imply conditions that are not synonymous with insolvency: having sufficient assets to cover liabilities reflects a solvent situation, a profitable revenue stream suggests financial health and stability, and being in the process of expanding indicates growth, not distress. Understanding insolvency is crucial for assessing the risk and potential investment in a company.