A business with favorable liquidity has the potential to generate impressive returns, as the cash supports the growth of its business.

Liquidity indicates a company’s ability to pay off debts by converting its assets into cash and cash equivalents. However, one should be careful before investing in a stock with a high level of liquidity, as this can also imply that the company is not using its assets competently.

Therefore, it is advisable to consider a company’s level of efficiency in addition to its liquidity to identify potential winners. An efficient business with a favorable level of liquidity can prove to be a lucrative addition to your portfolio.

Measures to identify liquid stocks

Current ratio: It measures current assets against current liabilities. This ratio is used to measure a company’s potential to honor short and long term debts. A current ratio – also known as the working capital ratio – less than 1 indicates that the business has more liabilities than assets. However, a current high ratio does not always indicate that the company is in good financial health. It can also indicate that the company has not used its assets in a meaningful way. Therefore, a range of 1 to 3 is considered ideal.

Quick report: Unlike the current ratio, the Quick Ratio – also known as the “Acid Test Ratio” or “Quick Asset Ratio” – reflects a company’s ability to pay its short-term obligations. It considers inventories excluding current assets versus current liabilities. ratio, a fast ratio greater than 1 is desirable.

Cash ratio: This is the most conservative ratio of the three, as it takes into account cash and cash equivalents as well as funds invested versus current liabilities. It measures a company’s ability to honor its debts using the most liquid assets. While a cash ratio greater than 1 may indicate a healthy financial position, a higher number may indicate inefficiency in the use of cash.

A ratio greater than 1 is desirable at all times, but may not always adequately represent the financial condition of a business.

The story continues

Screening parameters

In order to pick the best of the bunch, we added asset usage – a widely used measure of a business’s efficiency – as one of the selection criteria. Asset utilization is the ratio of total sales in the last 12 months to the average of the last four quarters of total assets. Although this ratio varies from sector to sector, companies with a higher ratio than their respective sectors can be considered efficient.

In order to ensure that these liquid and efficient stocks have strong growth potential, we have added our exclusive Growth Style Score to the screen.

Current Ratio, Quick Ratio and Cash Ratio between 1 and 3 (While liquidity ratios greater than 1 are desirable, significantly high ratios may indicate inefficiency.)

Use of assets above the industry average (Higher asset utilization than the industry average indicates a company’s efficiency.)

Zacks rank equal to # 1 (Only stocks with a strong buy rating can pass). You can see The full list of today’s Zacks # 1 Rank stocks here.

Growth score less than or equal to B (The back-tested results show that stocks with a Growth score of A or B when combined with a rank 1 or 2 of Zacks easily beat other stocks.)

These criteria reduced the universe from over 7,700 stocks to just 15

Here are five of the 15 actions that qualified the screen:

Based in New Albany, OH, Abercrombie & Fitch ANF ​​is a specialist retailer of high-end casual clothing for men, women and children. The company operates through a network of approximately 850 stores in North America, Asia, Europe and the Middle East. Zacks’ consensus estimate for FY2021 earnings is set at $ 4.40 per share, up 33.3% in the past 60 days. The company has a growth score of A and a surprise four-quarter profit of 510.9%, on average.

Based in Birmingham, AL, Hibbett HIBB, previously known as Hibbett Sports, Inc, has evolved its sporting goods offering to an athletic-inspired fashion assortment. The company’s new corporate identity better reflects these transitions and highlights its consumer-centric Toe-to-Head orientation that responds to footwear trends and establishes cross-category connectivity with apparel and accessories offerings. The company offers products for individual and team sports in multiple stores and its omnichannel platform. Zacks’ consensus estimate for FY2022 earnings is set at $ 11.30 per share, up 26.3% in the past 60 days. The company has a growth score of A and a surprise four-quarter profit of 124.6%, on average.

Based in Palo Alto, California, You’re here TSLA is the market leader in battery electric car sales in the United States, holding approximately 60% of the market share. In fact, the company’s flagship Model 3 represents about half of the U.S. electric vehicle market. Tesla, which has succeeded in gaining a reputation as a gold standard over the years, is now a much larger entity than it has started since its IPO in 2010, with a market capitalization almost double of the combined value of the two largest US auto giants. Engines and Ford. Zacks’ consensus estimate for 2021 earnings is set at $ 5.23 per share, up 4.6% in the past 60 days. The company has a growth score of A and a surprise four-quarter profit of 26.5%, on average.

Based in St. Louis, MO Resources of the Ark ARCH is one of the largest coal producers in the United States, operating nine mines in major coalfields across the country. The location of its mines and access to export facilities allow the company to ship coal around the world. During the fiscal year ended December 31, 2020, it sold nearly 63 million tonnes of coal, including 0.9 million tonnes purchased from third parties. Zacks’ consensus estimate for 2021 earnings is set at $ 13.27 per share, up 55.2% in the past 60 days. The company has a growth score of B and a surprise earnings over the last four quarters of 5.4% on average.

Based in Santa Barbara, California, His bone SONO is a consumer electronics company. It is mainly involved in manufacturing smart speakers with immersive sound experience. The company is leveraging changing consumer technologies and entertainment trends to meet customer audio consumption patterns, which are primarily characterized by the rapid adoption of voice assistants and streaming services. Zacks’ consensus estimate for FY2021 earnings is set at $ 1.11 per share, up 30.6% in the past 60 days. The company has a growth score of A and a surprise profit for the last four quarters of 297.3%, on average.

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Disclosure: Officers, directors and / or employees of Zacks Investment Research may own or have sold securities short and / or hold long and / or short positions in options mentioned in this document. An affiliated investment advisory firm may own or have sold securities short and / or hold long and / or short positions in options mentioned in this document.

Disclosure: Information on the performance of Zacks’ portfolios and strategies is available at: https://www.zacks.com/performance.

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Abercrombie & Fitch Company (ANF): Free Stock Analysis Report

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Sonos, Inc. (SONO): Free Stock Analysis Report

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Arch Resources Inc. (ARCH): Free Stock Analysis Report

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