Lesson

Liquidity runway scorecard | Options Educator

Audit cash runway, debt walls, and liquidity buffers before taking a stock trade.

In this lesson

What is Financial Liquidity?

  • Liquidity = ability to pay bills and survive
  • Current ratio measures short-term health
  • Quick ratio is more conservative
  • Cash on hand is the ultimate safety net

Cash Burn and Runway

  • Runway = months of survival at current burn rate
  • < 12 months runway = capital raise likely
  • Stocks often crash when runway gets short
  • Watch for accelerating burn rates

Debt Analysis for Traders

  • Debt walls create refinancing risk
  • Covenant breaches can accelerate problems
  • Interest coverage shows ability to service debt
  • High leverage amplifies both gains and losses

Trading on Liquidity Analysis

  • Liquidity problems are often predictable
  • Buy puts on companies with short runways
  • Use spreads to define risk
  • Cheap stocks with bad balance sheets get cheaper

Explore