Cash Ratio or Cash Coverage Ratio (Formula, Examples) | Calculation

Описание: In this video on Cash Ratio. We discuss the cash ratio or cash coverage ratio in detail.

𝐂𝐚𝐬𝐡 𝐑𝐚𝐭𝐢𝐨 𝐨𝐫 𝐂𝐚𝐬𝐡 𝐂𝐨𝐯𝐞𝐫𝐚𝐠𝐞 𝐑𝐚𝐭𝐢𝐨
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This ratio measures the liquidity of the company and considers only the Cash and Cash Equivalents (these are the most liquid assets within the Current Assets).

𝐂𝐚𝐬𝐡 𝐑𝐚𝐭𝐢𝐨 𝐅𝐨𝐫𝐦𝐮𝐥𝐚
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Cash Ratio Formula = Cash + Cash Equivalents / Total Current Liabilities

𝐈𝐧𝐭𝐞𝐫𝐩𝐫𝐞𝐭𝐚𝐭𝐢𝐨𝐧 𝐨𝐟 𝐂𝐚𝐬𝐡 𝐑𝐚𝐭𝐢𝐨
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1. If the cash and cash equivalent is more than the current liabilities, this indicates that organisation has more cash than they need to pay of the current liabilities.

2. If Cash and Cash Equivalent is equal to Current Liabilities, this means that the firm has enough cash to pay off the current liabilities.

3. If Cash and Cash Equivalent is less than current liabilities, this is the right situation to be in, in terms of the company’s perspective. Because this means that the company has utilized its assets well to earn profits.

𝐋𝐢𝐦𝐢𝐭𝐚𝐭𝐢𝐨𝐧𝐬 𝐨𝐟 𝐂𝐚𝐬𝐡 𝐑𝐚𝐭𝐢𝐨
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1. Most of the firms think that usefulness of cash ratio is limited.

2. 0.2 cash coverage ratio is preferred as healthy in some countries.

To know more about 𝐂𝐚𝐬𝐡 𝐑𝐚𝐭𝐢𝐨, you can go to this 𝐥𝐢𝐧𝐤 𝐡𝐞𝐫𝐞: https://www.wallstreetmojo.com/cash-r...

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