A short-term solvency measure or liquidity measure that relates cash and cash equivalents to current liabilities:
A healthy cash ratio indicates that a company is able to meet its obligations towards short-term creditors. Suppose a company has $100,000 in liabilities and $30,000 in cash, then:
Cash ratio = 30,000/ 100,000= 0.3 times
This indicates that the company keeps $0.3 in cash for every $1 of obligations.
