For Immediate Release
Chicago, IL – August 17, 2020 – Stocks in this week’s article are Medifast, Inc. MED, ANGI Homeservices Inc. ANGI, Expeditors International of Washington, Inc. EXPD and Nu Skin Enterprises, Inc. NUS.
Liquidity of a stock is an important parameter that many investors tend to ignore. It primarily determines a company’s capability to meet debt obligations by converting assets into liquid cash and equivalents.
These stocks have always been in demand owing to their potential to provide maximum returns. However, one should be alert enough before investing in such stocks. While a high liquidity level may imply that the company is clearing its dues at a faster rate compared with peers, it may also indicate that the company is failing to use its assets efficiently
Hence, one may consider a company’s efficiency level in addition to its liquidity for identifying 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/1041917/4-topranked-liquid-bets-to-build-a-successful-portfolio
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Expeditors International of Washington, Inc. (EXPD) : Free Stock Analysis Report
Nu Skin Enterprises, Inc. (NUS) : Free Stock Analysis Report
ANGI Homeservices Inc. (ANGI) : Free Stock Analysis Report
MEDIFAST INC (MED) : Free Stock Analysis Report
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