The liquidity of a firm is measured by a ratio such as the ratio of _____ to the stock’s stock price.
The ratio of _____ to the stock price is known as _____ ratio.
The ratio of a firm’s liquidity is always the same as the stock price.
We can’t even tell that the ratio of _____ to the stock price is _____.
The numbers of a firm are not always as important as the ratios they measure. They are just a convenient way of measuring a firm’s liquidity. For example, the ratio of a firm’s “capital” to its current stock price is known as _____ ratio.But if we want to measure a firm’s liquidity, we don’t use the _____ ratio, we use the price-to-capital ratio.
The price-to-capital ratio is the formula that tells us how much a company’s stock should be worth to its owners.
I hear this a lot. People talk about the price-to-capital ratio and the price-to-book ratio and the price-to-cash-flow ratio in the same breath. The price-to-capital ratio is a more practical way of measuring a firm’s liquidity. A company’s book value is the amount of money it has on hand that its owners can use to cover the company’s expenses.
The price-to-capital ratio is a useful measure of a company’s liquidity because it shows how much of a company’s cash they have on hand to use to make investments like, say, buying back stock. The price-to-book ratio is a more useful measure of a companys book value because it shows how much of the companys books there is left after all the investments have been made.