Screen of the Week 11/02/2010: Current Ratio

By: Kevin Matras
November 02, 2010

This week, I’m focusing on another ratio to help gauge a company’s financial health: the Current Ratio. It’s calculated by dividing current assets by current liabilities. The higher the ratio, the better, meaning the company has more liquid assets to meet its short-term obligations. A ratio of 2 or more (meaning a company has at least twice as many short-term assets than short-term liabilities) is generally considered good.

Presently, the average current ratio for stocks in the S&P 500 is 1.82. BTW – the Medical sector has the best current ratio with a median of 2.68 while Finance still has the worst at 0.96.

How to Use
Screening for this is quite easy to do. It’s a ratio, so on any of our screeners, including the Research Wizard, you’d want to first go to Ratios. And then go to the Liquidity and Coverage section. From there, you’ll find an item called Current Ratio. That’s the one. As for what value to use, I prefer to compare a stock’s Current Ratio to the median for its Industry.

And in this week’s screen, we’re doing just that. We’ll also add in some other items to help us find sound companies with solid prospects for the future.

Screen Parameters
* Average Broker Rating = 1
(Only Strong Buys allowed.)

* Current Ratio > median for its respective X Industry
(Looking at the companies with the strongest liquid positions to meet their short-term financial obligations.)

* Current ratio > 2
(And at the very least, we want the companies to exceed the commonly held definition of good, which means greater than 2.)

* Projected 1 Yr. Growth Rate > median for its respective X Industry
(This means we’re looking for the companies with the best growth rates within their groups.)

* Projected 1 Yr. Growth Rate > 0
(And I only want positive projected growth rates.)

* Price >= $5

* Volume >= 100,000

Here are 5 stocks that passed this week’s screen:
• BKI – Buckeye Technologies Inc.
• BZ – Boise Inc.
• CISG – CNinsure Inc.
• IGTE – iGATE Corp.
• STRI -STR Holdings, Inc.

Start using this financial strength ratio in your own screening to help you find the stocks best able to prosper during these tough financial times. Put these ideas and others to the test today. Sign up now for a two week trial to the Research Wizard and start screening and backtesting your strategies before your next trade.

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