For Immediate Release
Chicago, IL – February 11, 2020 – Stocks in this week’s article are MagnaChip Semiconductor Corp. (MX - Free Report) , International Money Express, Inc. (IMXI - Free Report) , USANA Health Sciences (USNA - Free Report) and Trupanion, Inc. (TRUP - Free Report) .
4 Top-Ranked Liquid Bets to Build a Successful Portfolio
A company with strong liquidity always has the potential to provide higher returns as stable financial resources help fuel its business growth. It indicates a company’s capability of meeting its debt obligations by converting its assets into liquid cash and equivalents.
However, one should be careful of investing in a stock with high liquidity level as it may also indicate that the company is failing to utilize its assets efficiently.
Therefore, in addition to the sufficient cash in hand, an investor may also consider a company’s capital deployment abilities before putting his money on its stock. A healthy company with favorable liquidity may prove to be a profitable pick for one’s portfolio.
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/758130/4-topranked-liquid-bets-to-build-a-successful-portfolio
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