# Cash Ratio

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 Summary

### What is the Cash Ratio? Definition

The Cash Ratio method is a formula for measuring the liquidity of a company by calculating the ratio between all cash and cash equivalent assets and all current liabilities.

It excludes both inventory and accounts receivable in comparison to the Current Ratio.

The Cash Ratio model measures only the most liquid of all assets against current liabilities, and is therefore seen as the most conservative of the three liquidity ratios.

### Calculation of Cash Ratio

For the Cash Ratio formula, see the picture.

This Cash ratio is also known as the Liquidity Ratio and Cash Asset Ratio.

The formula is an indicator of the extent to which a company can pay its current liabilities. Without relying on the sale of inventory, and without relying on the receipt of accounts receivables.

A thing to remember when you are using the Cash Ratio formula is, that it ignores the timing of both cash received and cash paid out.

Book: Steven M. Bragg - Business Ratios and Formulas : A Comprehensive Guide

Book: Ciaran Walsh - Key Management Ratios

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 Cash Ratio Special Interest Group. Special Interest Group (49 members)
 Forum

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 When is Cash Ratio Good? Rule of Thumb What is a good cash ratio? When can we generally consider a cash ratio as sufficient?... 0   2 comments

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 🥇 Too much Liquidity? Decapitalization Strategies In Strategy+Business, Issue 46, Spring 2007, BAH VP Justin Petit argues that many companies are sitting on mountains of cash and need a decapitalization strategy. Decapitalization categories include: ... 19   1 comments
 Expert Tips

 Decapitalization StrategiesThings to do when Liquidity is too HighIn Strategy+Business, Issue 46, Spring 2007, BAH VP Justin Petit argues that many companies are sitting on mountains of ... Net Income vs. Cash FlowFinancial Statement AnalysisCash Flow from Operations is a much better metric to assess a company’s financial health than Net Income, as cash flows ... Limitations of Cash Flow From OperationsFinancial Statement AnalysisLimitations of Cash Flow From Operations: 1. Cash from operations does not include a charge for use of a firm’s operati... Accelerating Cash Flow VelocityCash ManagementTo accelerate cash flows, companies should address the following key areas: - Optimize the sales cycle by allowing adju...
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 3 Minute Introduction to Financial Ratio Analysis: Why do it and What are the Main Types?Types of Financial Ratios, Financial Ratio Analysis, Financial Ratio TypesWhy financial ratio analysis? 1. To compare the financial health of (similar) companies (which one is doin... Quickly Reading a Profit and Loss Statement and a Balance SheetProfit and Loss Statement Analysis, Analyzing a P<his video explains that when we're reading a profit and loss statement as a director we should: - Not focus on the fig... Cash Ratio DiagramMeasuring LiquidityDownload and edit the 12manage PowerPoint model for limited personal, educational and business use. Republishing in int...

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