What is the highest liquidity ratio?
In short, a “good” liquidity ratio is anything higher than 1. Having said that, a liquidity ratio of 1 is unlikely to prove that your business is worthy of investment. Generally speaking, creditors and investors will look for an accounting liquidity ratio of around 2 or 3.
A company with a liquidity ratio of 1 — but preferably above 1 — is in good standing and able to meet current liabilities. Anything below 1 means the business will have issues paying debts.
Cash is the most liquid asset, followed by cash equivalents, which are things like money market accounts, certificates of deposit (CDs), or time deposits.
- Current Ratio or Working Capital Ratio.
- Quick Ratio also known as Acid Test Ratio.
- Cash Ratio also known Cash Asset Ratio or Absolute Liquidity Ratio.
- Net Working Capital Ratio.
Liquidity ratio for a business is its ability to pay off its debt obligations. A good liquidity ratio is anything greater than 1. It indicates that the company is in good financial health and is less likely to face financial hardships.
Conversely, if the company's ratio is 0.8 or less, it may not have enough liquidity to pay off its short-term obligations. If the organization needed to take out a loan or raise capital, it would likely have a much easier time in the first instance.
Current ratio can be defined as a liquidity ratio that measures a company's ability to pay short-term obligations. Apple current ratio for the three months ending December 31, 2023 was 1.07.
Liquid markets are usually found in financial assets such as forex, futures, bonds, and stocks. Markets for high-priced tangible goods, such as luxury items, heavy industrial equipment, or houses are considered illiquid markets.
Coca-Cola Co has a current ratio of 1.13. It generally indicates good short-term financial strength. During the past 13 years, Coca-Cola Co's highest Current Ratio was 1.34. The lowest was 0.76.
A company's liquidity indicates its ability to pay debt obligations, or current liabilities, without having to raise external capital or take out loans. High liquidity means that a company can easily meet its short-term debts while low liquidity implies the opposite and that a company could imminently face bankruptcy.
What is a 2.5 liquidity ratio?
Answer and Explanation: A current ratio of 2.5 means that for every of liabilities there is $2.50 of current assets. For example, if current liabilities is $1.00 and current assets is $2.50, using the formula above, the current ratio is 2.5.
Low current ratio: A ratio lower than 1.0 can result in a business having trouble paying short-term obligations. As such, it may make the business look like a bigger risk for lenders and investors.
This ratio measures the financial strength of the company. Generally, 2:1 is treated as the ideal ratio, but it depends on industry to industry.
A Liquidity Ratio that is consistently below 1.0 may also be an indication of financial distress and could lead to bankruptcy or insolvency in the near future. To manage Liquidity Ratios, it's essential to maintain an appropriate balance between current assets and liabilities.
A good range for the current ratio to fall within is typically 1.5 to 3. If the current ratio is 3, that means the company has enough current assets to pay for its current liabilities threefold. If the ratio is less than 1, the company does not have enough current assets on hand to pay for its current liabilities.
Generally, quick ratios between 1.2 and 2 are considered healthy. If it's less than one, the company can't pay its obligations with liquid assets. If it's more than two, the company isn't investing enough in revenue-generating activities.
In general, a cash ratio equal to or greater than 1 indicates a company has enough cash and cash equivalents to entirely pay off all short-term debts. A ratio above 1 is generally favored, while a ratio under 0.5 is considered risky as the entity has twice as much short-term debt compared to cash.
Current ratio can be defined as a liquidity ratio that measures a company's ability to pay short-term obligations. Amazon current ratio for the three months ending December 31, 2023 was 1.05.
Wal Mart Stores's current ratio for fiscal years ending January 2020 to 2024 averaged 0.9x. Wal Mart Stores's operated at median current ratio of 0.8x from fiscal years ending January 2020 to 2024. Looking back at the last 5 years, Wal Mart Stores's current ratio peaked in January 2021 at 1.0x.
Tesla's operated at median current ratio of 1.5x from fiscal years ending December 2019 to 2023. Looking back at the last 5 years, Tesla's current ratio peaked in December 2020 at 1.9x. Tesla's current ratio hit its 5-year low in December 2019 of 1.1x.
Which ETF has high liquidity?
iShares iBoxx $ High Yield Corporate Bond ETF is the largest and most liquid fund in the high-yield bond space, with AUM of $19 billion and an expense ratio of 0.49%. It offers exposure to a broad range of U.S. high-yield corporate bonds.
Stocks of small and mid-cap companies have high market liquidity risk, as stated above. This is because buyers are uncertain of their potential growth in the future and hence, are unwilling to purchase such securities in fear of incurring losses in the long term.
Apple (AAPL -1.22%), Tesla (TSLA -1.92%), and Facebook (NASDAQ:FB) are all great examples of highly liquid stocks.
Current and historical current ratio for PepsiCo (PEP) from 2010 to 2023. Current ratio can be defined as a liquidity ratio that measures a company's ability to pay short-term obligations. PepsiCo current ratio for the three months ending December 31, 2023 was 0.85.
- Current Ratio.
- Quick Ratio or Acid test Ratio.
- Cash Ratio or Absolute Liquidity Ratio.
- Net Working Capital Ratio.
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