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The Zulu Principle: Making extraordinary profits from ordinary shares by Jim Slater

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5. Liquidity, Cash Flow And Borrowings

Icould have simply entitled this chapter ‘A Strong Financial Position’ but I wanted to highlight liquidity, cash flow and borrowings as three very important and distinct factors.

The word ‘liquidity’ refers to assets that are ‘easily converted into cash’. The assets in question are usually short-term loans, debtors (less creditors), gilts, quoted investments and, of course, cash. The word ‘easily’ means ‘free of pain or trouble’. In a deep recession, debtors could be much more difficult to convert than you might expect (ask any bank) but we will proceed on the basis that the financial climate is reasonably normal.

Obviously, a company is in a strong financial position if it has substantial cash balances ...

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