Explain the Importance of the Difference Between the Value of a Bank's

question 47

Essay

Explain the importance of the difference between the value of a bank's assets and the value of its liabilities.
If a company is economically viable, the value of what it owns (assets) will exceed the value of what it owes (liabilities). Equity, therefore, will be positive, and the company will be a going concern (will continue operating). If a company is not viable, the value of what it owes will exceed what it owns. Equity, therefore, will be negative, and the company will be economically bankrupt. This does not mean, however, that it will cease operating at that time.

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