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Learn Liquidity Ratios - Fundamental Analysis Part 11
Original: Liquidity Ratios నేర్చుకోండి (2023) ! Fundamental Analysis Part 11 | #fundamentalanalysis
Takeaway
Healthy companies maintain a current ratio of ~1.33-3; idle cash hurts return ratios, so context (size, business) matters when reading the number.
Summary
- Two liquidity ratios: Current Ratio = current assets / current liabilities; Quick Ratio (acid-test) excludes inventory.
- Current assets include cash, FDs, mutual funds, quoted investments, receivables, inventory, and short-term advances; liabilities include OD facility, short-term loans, EMI portion of long-term loans, customer advances, outstandings.
- Ideal current ratio is 1.33-3. Pidilite at 1.52 example. Below 1.33 is weak liquidity; small companies below this need detailed investigation.
- Exception: efficient large companies (e.g., Pidilite) keep less idle cash to protect return ratios - acceptable 0.75-1; below 0.75 is a red flag even for giants.
liquidity ratiocurrent ratiofundamental analysis
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In this Video we Explained what are Liquidity ratios and how it can be measured for a Company while picking a Stock for Investments. Current Ratios Analysis along with Quick Ratios is one of the important parameter in Fundamental Analysis.
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