Key Advice for Boards Dealing with Solvency Opinions

23 June 2022
 Categories: Finance & Money, Blog

Sometimes, it's necessary for boards to perform solvency opinions. This is where the assets of a company are looked at in order to see if they are enough to cover the debt of a target company being examined. If your board needs to have one conducted, these protocols are worth following.

Find an Experienced Firm

In order to gain meaningful insights from a solvency opinion concerning a particular company, it's important that your board partners up with an experienced firm that specializes in carrying out these opinions. Then you can trust you'll get a competent solvency opinion that's thorough and explains everything you need to see as far as assets covering debts.

An experienced firm will also be extremely helpful at breaking down the solvency opinion, which is crucial if you're having it done for the first time and thus need added direction and insights throughout this process. 

Have the Right Financial Statements Examined

The key to determining if a company can be solvent or not towards its debts is looking at the right financial information. There are several key financial statements in particular that you'll want your solvency opinion firm to examine thoroughly.

These include balance sheets, cash flow statements, and debt/income ratios. An experienced solvency opinion firm will be able to examine each of these documents and glean relevant information from them so that you can effectively determine if a target company is solvent or not.

Conduct Solvency Opinions at the Right Times

There are going to be some situations that make solvency opinions more relevant than others. You need to know what these are so that you can carry this process out at the right interval and thus benefit the most from it. Some of these events might include leveraged buyouts, dividend recapitalization, and any other major transaction.

Basically, if there's a major shift in a company's financial activity because of an event, it would be pivotal to have a solvency opinion carried out by an independent firm. You can also consult with a firm on the justifications of having this opinion carried out, making sure it's appropriate for your company. 

Solvency opinions are very important financial examinations that boards can have carried out any time there's a major transactional obligation taking place. As long as you hire the right firm to manage this opinion and gain as many helpful insights from it as you can, it will have major payoffs. 

For more info, reach out to a company such as Marshall & Stevens.