The formula to calculate the Cash Ratio is:
\[ \text{CR} = \frac{\text{C}}{\text{CL}} \]
Where:
The cash ratio is a metric that measures the proportion of a company’s liquid assets to its current liabilities. It helps assess how well a company can cover its short-term obligations using only its cash and cash equivalents. This metric is important for investors, lenders, and analysts as it indicates a company’s short-term solvency and liquidity. A higher cash ratio suggests a stronger ability to meet short-term obligations, which is generally viewed as favorable.
Let's consider an example:
Using the formula to calculate the Cash Ratio:
\[ \text{CR} = \frac{50000}{100000} = 0.50 \]
This means that the cash ratio for this scenario is 0.50.
