Cash Ratio (CR)

Posted in Finance, Accounting and Economics Terms, Total Reads: 1351

Definition: Cash Ratio (CR)

Cash Ratio is a liquidity ratio and is defined as: 

CR = (Cash + Cash Equivalents)/Current Liabilities

Cash equivalents include those securities which can be quickly converted to cash when desired. Example, marketable securities, accounts receivables, etc.

Current Liabilities are those which the firm needs to pay off within a period of 1 year. 

CR indicates the liquidity position of a firm and its ability to repay its immediate liabilities with cash. Creditors always desire a high cash ratio (preferably more than 1) as that indicates that the firm is well able to cover up all its current liabilities with the cash generated from the business.

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