Asked by Devyn Smallwood on Jun 13, 2024
Verified
The cash ratio is measured as:
A) Current assets divided by current liabilities.
B) Current assets minus cash on hand, divided by current liabilities.
C) Current liabilities plus current assets, divided by cash on hand.
D) Cash on hand plus inventory, divided by current liabilities.
E) Cash on hand divided by current liabilities.
Cash Ratio
A financial metric assessing a firm's capability to meet its current obligations using its available cash and near-cash assets.
Cash on Hand
The amount of cash a company or individual has accessible for immediate use, which might be in the form of currency or liquid assets.
Current Assets
Short-term assets including cash, inventory, and receivables that are anticipated to be used or liquidated within one business cycle.
- Acknowledge the value of liquidity ratios in the assessment of short-term financial robustness.
Verified Answer
SC
Suzette CampbellJun 19, 2024
Final Answer :
E
Explanation :
The cash ratio is a liquidity ratio that measures a company's ability to pay off its short-term liabilities with its cash and cash equivalents. It is calculated by dividing the company's cash and cash equivalents by its current liabilities. Therefore, option E, which defines the cash ratio as "Cash on hand divided by current liabilities," is correct.
Learning Objectives
- Acknowledge the value of liquidity ratios in the assessment of short-term financial robustness.