What is the purpose of solvency analysis in restructuring?

The purpose of solvency analysis in the context of restructuring is primarily to assess a company's capability of meeting long-term obligations. This analysis is crucial for understanding a company's financial health and sustainability, especially when it is facing financial distress. By evaluating whether a company can cover its long-term debts and obligations, stakeholders can better frame strategies for restructuring. This involves a detailed look at cash flow projections, asset valuations, and liabilities, which helps in guiding decisions on how to restructure the company’s operations, financing, and capital structures to improve its financial stability and future viability.

In contrast, evaluating short-term financial performance, determining budget allocations for the next fiscal year, and comparing financial ratios with industry standards focus on different aspects of financial management and may not directly address the core issues relevant to solvency and long-term financial health in a restructuring context.