![]() ![]() Zacks Rank equal to #1 (Only Strong Buy-rated stocks can get through). To ensure that these liquid and efficient stocks have solid growth potential, we have added our proprietary Growth Style Score to the screen.Ĭurrent Ratio, Quick Ratio and Cash Ratio between 1 and 3 (While liquidity ratios greater than 1 are desirable, significantly high ratios may indicate inefficiency.)Īsset utilization greater than the industry average (Higher asset utilization than the industry average indicates a company’s efficiency.) Though this ratio varies across industries, companies with a ratio higher than their respective industries can be considered efficient. Asset utilization is the ratio of total sales in the past 12 months to the last four-quarter average of total assets. To pick the best of the lot, we have added asset utilization - a widely-used measure of a company’s efficiency - as one of the screening criteria. Though a cash ratio of more than 1 may suggest sound financials, a higher number may indicate inefficiency in cash utilization.Ī ratio greater than 1 is always desirable but may not always represent a company’s financial condition. It measures a company’s ability to meet current debt obligations using the most liquid assets. Like the current ratio, a quick ratio of more than 1 is desirable.Ĭash Ratio: This is the most conservative ratio among the three, as it considers cash and cash equivalents and invested funds relative to current liabilities. It considers inventory excluding the current assets relative to current liabilities. Quick Ratio: Unlike the current ratio, the quick ratio - also called the “acid-test ratio" or the "quick assets ratio" - reflects a company’s ability to pay short-term obligations. Hence, a range of 1-3 is considered ideal. It may also suggest that the firm failed to utilize its assets significantly. However, a high current ratio does not always suggest that the company is in good financial shape. A current ratio - also known as the working capital ratio - below 1 indicates that the company has more liabilities than assets. The ratio gauges a company’s potential to meet short- and long-term debt obligations. Measures to Identify Liquid StocksĬurrent Ratio: It measures current assets relative to current liabilities. Hence, an investor may consider a company’s efficiency level in addition to its liquidity for identifying potential winners. However, high liquidity may suggest a company’s inefficiency in utilizing its assets properly. Stocks with high liquidity levels have always been in demand, owing to their potential to provide maximum returns. Liquidity measures a company’s capability to meet its short-term debt obligations. ![]() In that case, one may consider liquidity levels, which are often taken as a good indicator of a company’s financial health. Identifying stocks that offer healthy returns may sometimes be a challenge for investors.
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