Cash ratio / Absolute liquidity ratio

Last updated: 25.03.2016

Cash ratio (Absolute liquidity ratio) is one of liquidity indicators which informs us about how many times the firm would be able to pay its current liabilities, if it converts its financial assets to cash.

The indicator has only the most liquid component in the numerator - (short-term) financial assets comprising of cash, bank accounts and possibly short-term investments (short-term securities).

 

Calculation formula

 

 

Recommended value and interpretation 

Recommended value: the ideal value is around 0,2 - 0,5.

Their general interpretation:

  • lower values ​​- lower ability to pay short-term obligations
  • too high values = inefficiencies 
  • ideal values ​​shall thus be neither low nor high

 

Comparison possible with

  • recommended values
  • in time-series; it the company does not achieve the recommended values, but have done well without any problems, it can be then expected that it will continue to be successful with the same values in the future


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1 = nejhorší, 10 = nejlepší

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