Use the Quick Ratio

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Use the Quick Ratio

Investors and traders 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. Creditors also use the quick ratio in deciding whether or not to extend loans to companies. Both investors and traders use the quick ratio in evaluating stocks and deciding if a stock price is likely to rise or fall. 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. In this sense investors use the quick ratio as a measure of a stock’s margin of safety. 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. The day trader may use the quick ratio in picking stocks that might become volatile due to debt problems. If a company is currently unable to retire its debt, it may subject to stock price volatility. Following the stock with Candlestick analysis will help the trader anticipate price movement in response to this situation.

The Quick Ratio as a Fundamental of Stock Analysis

Investors use the quick ratio as part of fundamental analysis of stocks. 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 stock’s price. In long term investing, intrinsic stock value is thought by many to be the gold standard. However, a company with great products and services still needs to manage its short term debt in order to survive. Sadly, too many promising companies go out of business or are taken over because of short term debt issues. 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.

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Use the Quick Ratio

  1. 1. Use the Quick Ratio www.CandlestickForums.com
  2. 2. 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
  3. 3. Creditors also use the quick ratio in deciding whether or not to extend loans to companies. www.CandlestickForums.com
  4. 4. Before We Continue… Click the links below to get your FREE training materials. Free Weekly Investing Webinars Don’t miss these free training events! http://www.profitableinvestingtips.com/free-webinar Forex Conspiracy Report Read every word of this report! http://www.forexconspiracyreport.com
  5. 5. 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
  6. 6. 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
  7. 7. In this sense investors use the quick ratio as a measure of a stock’s margin of safety. www.CandlestickForums.com
  8. 8. 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
  9. 9. The day trader may use the quick ratio in picking stocks that might become volatile due to debt problems. www.CandlestickForums.com
  10. 10. If a company is currently unable to retire its debt, it may subject to stock price volatility. www.CandlestickForums.com
  11. 11. Following the stock with Candlestick analysis will help the trader anticipate price movement in response to this situation. www.CandlestickForums.com
  12. 12. Investors use the quick ratio as part of fundamental analysis of stocks. www.CandlestickForums.com
  13. 13. 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 stockfs price. www.CandlestickForums.com
  14. 14. In long term investing, intrinsic stock value is thought by many to be the gold standard. www.CandlestickForums.com
  15. 15. However, a company with great products and services still needs to manage its short term debt in order to survive. www.CandlestickForums.com
  16. 16. Sadly, too many promising companies go out of business or are taken over because of short term debt issues. www.CandlestickForums.com
  17. 17. 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
  18. 18. To use the quick ratio effectively one needs to understand that what constitutes an acceptable quick ratio varies among market sectors. www.CandlestickForums.com
  19. 19. 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
  20. 20. 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
  21. 21. It does not tell us about the company’s credit worthiness. www.CandlestickForums.com
  22. 22. 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
  23. 23. We would typically not expect to see a great deal of market volatility in such a stock using Candlestick charting techniques. www.CandlestickForums.com
  24. 24. In trading stocks or in options trading the quick ratio is a useful guide to short term credit worthiness. www.CandlestickForums.com
  25. 25. Spotting stocks with questionable quick ratios and analyzing with Candlestick patterns can lead to profitable stock trading. www.CandlestickForums.com
  26. 26. 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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