Financial Ratio for Stock Picking
Liquidity Ratio This ratio indicates how rapidly a corporation can turn its present assets into cash in order to pay down its liabilities on time. Liquidity and short-term solvency are frequently used simultaneously. Current Ratio The current ratio compares a company's capacity to pay down current obligations (those due within one year) with its total current assets, which include cash, accounts receivable, and inventory. The better the company's liquidity condition, the higher the ratio: Current Ratio = Current Liabilities / Current Assets Quick Ratio The quick ratio, which removes inventory from current assets, assesses a company's ability to satisfy short-term obligations with its most liquid assets. Quick ratio= (C+MS+AR) / CL C - cash & cash equivalents MS - marketable securities AR - accounts receivable CL - current liabilities Another way is: Quick ratio = (Current assets - Inventory - Prepaid expenses) / Current liabilities Efficiency ratio The efficiency...