The cash ratio is a measure of a company's ability to pay its current liabilities from cash and cash equivalents.
What Is the Cash Ratio?
The cash ratio is a measurement of a company's liquidity.
It specifically calculates the ratio of a company's total cash and cash equivalents to its current liabilities.
The metric evaluates company's ability to repay its short-term debt with cash or near-cash resources, such as easily marketable securities. This information is useful to creditors when they decide how much money, if any, they would be willing to loan a company.
The formula for a company's cash ratio is:
Cash Ratio= Cash + Cash Equivalents / Current Liabilities
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