Description
Like the Current Ratio and the Quick Ratio, the Cash Ratio measures firm liquidity. However, it uses only the most conservative measures to do so. That is, only current assets that can be quickly converted into cash are included in the calculation.
Calculation
What it Means
A measure of firm liquidity, the cash ratio uses cash and short term or marketable investments to calculate the ratio of assets to liabilities. As with the Current Ratio and Quick Ratio, the Cash Ratio is a measure of firm liquidity.