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Stock investing using the current ratio

Similair ratio to the current ratio CLICK HERE The current ratio of a company is currently it's total assets divided by liabilities. So say as a crazy example a company owes 2 bucks but it has 3 dollars worth of assets. 3/2 = 1.5. So this would mean that for every dollar the company owes it has a 1.50 in assets.


This is a very important ratio because when a company starts having debt problems-liabilities more than it has in assets they are taking a huge financial risk and could go bankrupt which for you means no money. If the ratio is below 1 be wary it probably means they are having financial troubles.

Especially with short term obligations they must have a low amount of debt. This is a very important ratio in fundamentals of investing in stocks. You can check it on msnmoney CLICK HERE. If it's below 1 make sure you know why and if they will be able to start paying off the nagging debt that they have.

Also be sure to check this number and compare it too the industry average,if it's above the industry average it probably means the company has a competitive advantage over their competition becasue of the assets compared to the debt.

Examples of smart investing in companies with a good ratio of this

These example were good on this date sep-3-08

Many companies have been asset rich compared to their competition over the years. One of the ones that stands to mind is Garmin Ltd.. Which has a current ratio of well over 3. In the past this was soaring in price but recently has fallen with still good looking financial sheets. also be sure to check the debt to equity ratio Many times investors price stocks too low compared to what the company is actually worth. One of the ways to judge if a company will actually perform well in the long run is looking at it's current assets which is what these ratios allow for. Debt is also important which is why you ALSO need to look at the quick ratio. The Quick ratio of a company is the amount of cash and cash like assets they have to be able to pay off immediate cash like debt.