If its enterprise value falls below its liabilities, equity holders will avoid further losses by a "put" to debt holders, meaning they bail out and let creditors fight over the remains.

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Naturally there are many other things to consider, like the nature of the assets and liabilities, whether the company is currently making profits or losses, and the ratio of its liabilities to its equity.

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Next down the chain of capital, preferred equity and derivatives liabilities are eliminated.

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The lower liabilities are relative to assets, the greater is the equity cushion.

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Thus, the balance sheet looks like this: 850 of assets (after a 150 loss), 900 of liabilities in the form of borrowed money, and negative equity of 50.

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In the simplest terms, a typical bank will have 1, 000 euros of assets in the form of loans, 900 euros of liabilities in the form of borrowed money and 100 euros of equity.

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Now we have 933 billion of liabilities, 1, 137 billion of assets, and 204 billion of equity.

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When I am measuring the true indebtedness of an enterprise, I like looking at liabilities as a percentage of oversimplified enterprise value even more than I like looking at debt to equity ratios.

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On the liabilities side, it has 900 of borrowed money (deposits and other borrowings), and 100 of equity capital.

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In other words, given their current liabilities, they simply invested far too little in cash and liquid assets rather than too much in alternatives like private equity.

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