Cash Asset Ratio
Definition of 'Cash Asset Ratio'The current value of marketable securities and cash, divided by the company's current liabilities. Also known as the cash ratio, the cash asset ratio compares the dollar amount of highly liquid assets (such as cash and marketable securities) for every one dollar of short-term liabilities. This figure is used to measure a firm's liquidity or its ability to pay its short-term obligations. Ideal ratios will be different for different industries and for different sizes of corporations, and for many other reasons. |
|
Investopedia explains 'Cash Asset Ratio'The cash asset ratio is similar to the current ratio, except that the current ratio includes current assets such as inventories in the numerator. Some analysts believe that including current assets makes it difficult to convert them into usable funds for debt obligations. The cash asset ratio is a much more accurate measure of a firm's liquidity.For example, if a firm had $130,000 in marketable securities, $110,000 in cash and $200,000 in current liabilities, the cash asset ratio would be (130,000+110,000)/200,000 = 1.20. Ratios greater than 1 demonstrate a firm's ability to cover its current debt, but ratios that are too high might indicate that a company is not allocating enough resources to grow its business. |
Related Definitions
Articles Of Interest
-
Analyze Investments Quickly With Ratios
Make informed decisions about your investments with these easy equations. -
Debt Reckoning
Learn about debt ratios and how to use them to assess a company's financial health. You could save a lot of money! -
Liquidity Measurement Ratios
Learn about the current ratio, quick ratio, cash ratio and cash conversion cycle. -
Debt Ratios
Learn about the debt ratio, debt-equity ratio, capitalization ratio, interest coverage ratio and the cash flow to debt ratio. -
Ratio Analysis Tutorial
If you don't know how to evaluate a company's present performance and its possible future performance, you need to learn how to analyze ratios. -
Pay Attention To The Proxy Statement
Don't overlook this overview of a company's well-being. -
Explaining Amortization In The Balance Sheet
Amortization is important to account for intangible assets. Read to find out more about amortization. -
Understanding Off-Balance Sheet Financing
For anyone who was invested in Enron, off-balance sheet (OBS) financing is a scary term. Off-balance sheet financing means a company does not include a liability on its balance sheet. It is ... -
Earnings Guidance: Can It Accurately Predict The Future?
Explore the controversies surrounding companies commenting on their forward-looking expectations. -
Depreciation: Straight-Line Vs. Double-Declining Methods
Appreciate the different methods used to describe how book value is "used up".
Free Annual Reports