CASH RATIO

This ratio allows you to analyse the amount of liquid assets (total cash and cash equivalents), or the possibility of getting them, compared to the current liabilities.

Also known as the First Degree liquidity measurement, this ratio takes into account the elements of the current assets known as “cash and cash equivalents”, which are available or can be made available, even though they don´t have to be immediately on hand so as not to be detrimental to the company´s operating cycle. This can be calculated in two ways:

  • By adding up those elements of the current assets that complete the aforementioned condition. CaR = (Liquid assets + short-term financial investments) / Current liabilities.
  • By subtracting the elements that directly sustain the operating cycle from the current assets. CaR = (current assets – inventorydebtors, or accounts receivable) / Current liabilities.

Therefore, the general formula would be as follows: CaR = financial assets / Current liabilities