Published on March 3, 2014
Use the Quick Ratio www.CandlestickForums.com
Investors use the quick ratio, also known as the acid test, to determine if a company has the ability, in the near term, to pay back current debt. www.CandlestickForums.com
Creditors also use the quick ratio in deciding whether or not to extend loans to companies. www.CandlestickForums.com
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Both investors and traders use the quick ratio in evaluating stocks and deciding if a stock price is likely to rise or fall. www.CandlestickForums.com
The quick ratio differs from the price to earnings ratio in that it does not measure current cash flow but rather cash, or cash equivalents, in hand. www.CandlestickForums.com
In this sense investors use the quick ratio as a measure of a stock’s margin of safety. www.CandlestickForums.com
A stock with a high quick ratio will be seen as a secure investment whereas a stock with a low quick ratio will be seen as risky. www.CandlestickForums.com
The day trader may use the quick ratio in picking stocks that might become volatile due to debt problems. www.CandlestickForums.com
If a company is currently unable to retire its debt, it may subject to stock price volatility. www.CandlestickForums.com
Following the stock with Candlestick analysis will help the trader anticipate price movement in response to this situation. www.CandlestickForums.com
Investors use the quick ratio as part of fundamental analysis of stocks. www.CandlestickForums.com
Although the fundamentals of a stock are quickly discounted by the market, knowing fundamentals gives the investor or trader as clear idea of the likely limits of a stockfs price. www.CandlestickForums.com
In long term investing, intrinsic stock value is thought by many to be the gold standard. www.CandlestickForums.com
However, a company with great products and services still needs to manage its short term debt in order to survive. www.CandlestickForums.com
Sadly, too many promising companies go out of business or are taken over because of short term debt issues. www.CandlestickForums.com
The savvy trader will spot these stocks and use technical analysis tools such as Candlestick pattern formations in order to profitably anticipate changes in price. www.CandlestickForums.com
To use the quick ratio effectively one needs to understand that what constitutes an acceptable quick ratio varies among market sectors. www.CandlestickForums.com
In other words the investor or trader will compare a stock’s quick ratio with other stocks selling comparable products or services and not with the market in general. www.CandlestickForums.com
A quick ratio of 1 or better tells us that a company has cash and quickly convertible assets sufficient to retire immediate debt. www.CandlestickForums.com
It does not tell us about the company’s credit worthiness. www.CandlestickForums.com
For example, a company with substantial debt free property and plant facilities as well as a strong cash flow will typically be able to borrow money to cover short term needs even it does not have the cash on hand. www.CandlestickForums.com
We would typically not expect to see a great deal of market volatility in such a stock using Candlestick charting techniques. www.CandlestickForums.com
In trading stocks or in options trading the quick ratio is a useful guide to short term credit worthiness. www.CandlestickForums.com
Spotting stocks with questionable quick ratios and analyzing with Candlestick patterns can lead to profitable stock trading. www.CandlestickForums.com
For the long term investor finding stocks with high quick ratios can be a first step to finding valuable additions to a stock portfolio. www.CandlestickForums.com
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The Quick Ratio is a way to evaluate a company financial health by determining if it has enough cash or other current assets to cover its current liabilities.
Investors use the quick ratio, also known as the acid test, to determine if a company has the ability, in the near term, to pay back current debt.
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