The Incredible Lightness of Part-Time Investing

Reviewing the company’s recent financials, some might argue that the current ratio of salesforce.com, inc. (NYSE:CRM) is skewed, as the company carries a large deferred revenue balance relative to other items on the balance sheet. Deferred revenue, a liability, is comprised of the cash and receivables a company claims on its books for services not yet rendered. In this case, deferred revenue is equivalent to subscription revenues for salesforce.com’s popular applications.

Yet, it’s fair to say that salesforce.com, inc. (NYSE:CRM) suffers from poor liquidity. It essentially uses cash to operate that is already spoken for, and could theoretically be reclaimed by customers. You can read more about salesforce.com’s liquidity issues here, but the point is that the very low current ratio is a call to more investigation if you own salesforce.com, and are conducting a quarterly review of your holdings.

Practice away
There are other related liquidity ratios which promote an even stricter definition of liquidity, such as the “Quick Ratio,” which excludes assets like inventory, which take time to convert to cash, or the “Cash Ratio,” which pits only a company’s cash against its current liabilities. These are useful to know, but for starters, you can review a holding’s current ratio, and its trend lines, as a first blush at determining relative health. This liberating, once-a-quarter exercise can help free you from the noise of the daily news cycle and, hopefully, will inject a reasonable degree of certainty into your investing strategy.

The article The Incredible Lightness of Part-Time Investing originally appeared on Fool.com.

Fool contributor Asit Sharma has no position in any stocks mentioned. The Motley Fool recommends Apple, Salesforce.com, and Tesla Motors (NASDAQ:TSLA). The Motley Fool owns shares of Apple and Tesla Motors. 

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