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The cash ratio is total cash and cash equivalents divided by current liabilities. It measures a company's ability to repay short-term debt using cash or cash equivalents.
What is Cash Ratio? The cash ratio, sometimes referred to as the cash asset ratio, is a liquidity metric that indicates a company’s capacity to pay off short-term debt obligations with its cash and cash equivalents.
The cash ratio formula measures the company's ability to pay off its short-term debt obligations by using only cash or near-cash assets like Cash & Bank and marketable securities. It essentially checks how a company can manage its assets during the worst-case default scenario.
The cash ratio is composed of two elements: cash and cash equivalents, and current liabilities. Cash includes physical currency and funds in bank accounts. Cash equivalents are short-term investments that can be quickly converted into cash, such as Treasury bills, money market funds, and commercial paper.
What is the Cash Ratio? The cash ratio is the ratio that measures the ability of the company to repay the short-term debts with the cash or cash equivalents, and it is calculated by dividing the total cash and the cash equivalents of the company with its total current liabilities.
The cash ratio measures a company’s ability to pay its short-term debts using only cash and cash equivalents. It’s one of many financial ratios that investors and lenders use to measure the health of a business and the risk of lending it additional money.
The cash ratio or cash coverage ratio is a liquidity ratio that measures a firm's ability to pay off its current liabilities with only cash and cash equivalents. The cash ratio is much more restrictive than the current ratio or quick ratio because no other current assets can be used.
The cash ratio is the most stringent liquidity ratio, focusing only on the company's cash and cash equivalents to cover its short-term liabilities. A higher cash ratio indicates a stronger financial position, but it may also suggest inefficient use of cash resources.
The cash coverage ratio (CCR) is calculated by dividing cash (cash at hand or bank and demand deposits) and cash equivalents (marketable securities like T-Bills) by total current liabilities (short-term debts, accounts payable, deferred revenue, accrued income, and interest expense).
The cash ratio is a financial metric that evaluates a company’s liquidity by measuring its ability to pay off short-term liabilities with its most liquid assets.