Recently, stock prices have been rising due to short covering by foreign investors.
However, the number of bankruptcies is increasing due to self-quarantine.
Therefore,this time I would like to introduce the points for confirming short-term stability in financial statements, which cannot be noticed only by the equity ratio.
This blog may be cause a little distress for those who are not familiar with financial statements, but I believe
it is very important during the current pandemic, so please go with this without fail.
There are two points.
① Confirmation of current ratio
Current ratio = current assets ÷ current liabilities
Compare the top figure in the left and the right columns of the balance sheet.
It depends on the industry or firm size, but it’s usually above the range of 60% to 120%.
② Confirmation of short-term liquidity
Short-term liquidity = (cash + immediately saleable assets) ÷ monthly sales
Short-term liquidity is the figure when dividing cash in banks plus immediately salable securities by the monthly sales, that is, one- twelfth of the company’s annual sales.
Although it also depends on the industry or firm size, if it is medium or small company, there is ordinarily no problem if it is 1.5 months’ worth, but I believe that it is ideal for 3 months or more due to the Covid-19 situation.
I think it will take less than a minute just to check the above two points.
And you will realize that most Japanese companies have a sound financial balance.
Perhaps, the financial statements delivered after the announcement of financial results looks hard to understand at a glance, but once you know the points to look for, you will find that it is not difficult at all.
I hope you can use this information to make your investment decisions.