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Cash Ratio – Meaning, Formula, Calculation & Interpretations [Video]

Cash Ratio – Meaning, Formula, Calculation & Interpretations

This tutorial will cover everything about Cash Ratio, including its definition, formula, calculations, and interpretations. You will also learn how to calculate Cash Ratio in Excel using the Colgate Case Study. You can download the Colgate Cash Ratio template from this link – https://www.wallstreetmojo.com/ratio-analysis-template/

What is a Cash Ratio?
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The cash ratio is a ratio that measures a company’s ability to repay short-term debts with cash or cash equivalents. It is calculated by dividing the company’s total cash and cash equivalents by its total current liabilities.

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

Interpretation of Cash Ratio
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– A cash ratio greater than 1 indicates that the company is inefficient in using cash to increase profits or that the market is saturated.
– A cash ratio less than 1 indicates that the company has used its cash efficiently or that it has not made enough sales to generate more cash.

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