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Paridhi Jhunjhunwala
15 Nov 2019
Associate at Kristal.AI
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Kelly Trinh
14 Nov 2019
Backoffice technical at financial services firm
Going to be a bit controversial here but I'd say these ratios are useless for deciding which companies to invest in.
Happy to be corrected by anyone who is serious trader who could share their experiences
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Isaac Chan
12 Mar 2019
Business at NUS
Building on Zann's answer, liquidity ratios can help you understand the credit strength of the compa...
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Hi!
Liquidity ratios are those which help you to assess the ability of a firm to repay its debts. This is important for investors in both debt and equity instruments. For the debt owner, if the company is unable to repay their claims, they will lose their capital. Equity owners will receive income through dividends only after the debt obligations are clear. Hence, having a good liquidity ratio shows that the company will be able to repay its obligations.
Liquidity ratios can be as follows:
However, agreeing with the others, these ratios are only helpful when used in comparison to other firms. Then we can take a call upon which company has a better liquidity position than the other. These numbers in isolation will not make much sense.
I work at kristal.AI, and it's my passion to evaluate various upcoming investment opportunities.