A:

There are other liquidity measures that can be used as an alternative to the cash ratio, including the current ratio and the quick ratio.

The cash ratio is a liquidity ratio that measures a company's ability to pay off all of its current liabilities with only its cash and cash equivalents. Since the cash ratio only allows for current liabilities to be paid with cash and cash equivalents, it's the most restrictive of the three liquidity ratios. The equation for the quick ratio is as follows:

Cash ratio = (cash + cash equivalents) / total current assets

The quick ratio is one of two alternatives a company can use in place of its cash ratio and measures a company's ability to pay off all of its current liabilities with cash and cash equivalents, as well as other highly liquid current assets. The quick ratio factors in a company's accounts receivables and other liquid current assets when assessing its ability to pay off its current liabilities, but does not include illiquid current assets, such as inventory. The two equations for the quick ratio are as follows:

Quick ratio = (cash + cash equivalents + accounts receivable) / total current assets

Quick ratio = (total current assets - inventory) / total current assets

The other alternative to the cash ratio is the current ratio. The current ratio measures a company's ability to pay off all of its current liabilities with its total current assets. It doesn't take into account the liquidity of its individual current assets, and assumes all current assets can be used to pay off its current liabilities. The equation for the current ratio is as follows:

Current ratio = (current assets) / (current liabilities)

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