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Computerized Investing > Fourth Quarter 2011

Liquidity Ratio Analysis

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by CI Staff

Liquidity ratios are used to determine a company’s ability to meet its short-term debt obligations. Investors often take a close look at liquidity ratios when performing fundamental analysis on a firm. Since a company that is consistently having trouble meeting its short-term debt is at a higher risk of bankruptcy, liquidity ratios are a good measure of whether a company will be able to comfortably continue as a going concern.

Any type of ratio analysis should be looked at within the correct context. For instance, investors should always look at a company’s ratios against those of its competitors, its sector and its industry and over a period of several years. In this issue’s Fundamental Focus, we investigate liquidity ratios using time-series analysis, competitive analysis and sector and industry analysis.

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