For Immediate Release
Chicago, IL - January 21, 2019 - Zacks.com releases the list of companies likely to issue earnings surprises. This week's list includes Crocs, Inc. CROX , Novanta Inc. NOVT , Abercrombie & Fitch Co. ANF and Maximus, Inc. MMS .
Key Takeaways from Q4 Earnings Results Thus Far
Building a portfolio comprising stocks with favorable liquidity is the way to go for investors seeking healthy returns. Liquidity indicates a company's capability to meet its short-term debt obligations by converting assets into liquid cash and equivalents. Thus, companies boasting impressive liquidity positions may be considered the ones with solid financial health.
However, high liquidity may also signify a company's inefficiency to utilize its assets effectively. It is therefore important to also focus on efficiency alongside liquidity to identify potential 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.
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