Cash Ratio

Cash ratio (called supper quick ratio)

Cash ratio considers only cash and Marketable securities (trading securities) that are easily convertible into cash.

Cash ratio analyzes liquidity in more conservative manner, looking at a company’s immediate liquidity; this ratio is useful indicator of liquidity if the company has a slow inventory turnover or slow receivable turnover or both.

A cash ratio that is too high may indicate that, a company is not using its resources productively in its operations, conversely, A cash ratio that is too low, could indicate a problem with meeting current liabilities.

One limitation with cash ratio is that, because it contains marketable securities, if the value of theses securities is so volatile, the cash ratio computed at year end based on quoted prices of these securities could be non-indicative.