For Immediate Release
Chicago, IL – March 25, 2019– Stocks in this week’s article include Commvault Systems, Inc. (CVLT - Free Report) , Fortinet Inc. (FTNT - Free Report) , Medifast (MED - Free Report) and Evercore Inc. (EVR - Free Report) . Kevin Matras screens for companies showing their 'first' profit and explains why they are ones to watch.
Screen of the Week written by Kevin Matras of Zacks Investment Research:
Grab These 4 Liquid Picks on the Top Rung for Robust Returns
Investors seeking strong returns may allocate to assets in stocks with strong liquidity. Liquidity is an important yardstick that indicates a company’s capability to meet debt obligations by converting assets into cash.
A company with a favorable liquidity position has the potential to provide higher returns as liquidity drives growth. However, one should exercise prudence before investing in such stocks. While a high liquidity level may imply that the company is meeting its obligations at a faster rate than its peers, it may also indicate that the company is failing to use its assets efficiently.
Hence, one may consider the efficiency level of a company in addition to its liquidity to identify prospective winners.
Measures to Identify Liquid Stocks
Current Ratio: It measures current assets relative to current liabilities. This ratio is used for measuring a company’s potential to meet both short- and long-term debt obligations. Thus, a current ratio — also known as working capital ratio — below 1 indicates that the company has more liabilities than assets. However, a high current ratio does not always indicate that the company is in good financial shape. It may also mean that the company has failed to utilize its assets significantly. Hence, a range of 1 to 3 is considered ideal.
Quick Ratio: Unlike current ratio, quick ratio — also called “acid-test ratio" or "quick assets ratio" — indicates a company’s ability to pay short-term obligations. It considers inventory excluding current assets relative to current liabilities. Like the current ratio, a quick ratio of greater than 1 is desirable.
Cash Ratio: This is the most conservative ratio among the three, as it takes into account only cash and cash equivalents, and invested funds relative to current liabilities. It measures a company’s ability to meet its current debt obligations using the most liquid of assets. Though a cash ratio of more than 1 may point to sound financials, a higher number may indicate inefficiency in cash utilization.
So, a ratio greater than 1 is desirable at all times but may not always appropriately represent a company’s financial condition.
For the rest of this Screen of the Week article please visit Zacks.com at:https://www.zacks.com/stock/news/363050/grab-these-4-liquid-picks-on-the-top-rung-for-robust-returns
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