What is a Cash Ratio?

The cash ratio is an indicator used when investing in a company's realizing capacity when a large number of accounts receivable are formed due to a large amount of credit sales. Current liabilities. Cash refers to cash on hand and bank deposits. Short-term securities mainly refer to short-term Treasury bills. The higher the cash ratio, the stronger the liquidation ability. This ratio is also called the liquidation ratio. In addition, the turnover rate of deposits and accounts receivable can also be used as supplementary indicators to reflect the short-term debt-paying capacity of an enterprise. ^[1]

Cash ratio

It will

Cash ratio refers to the ratio of cash in circulation to demand deposits of commercial banks. The level of cash ratio is positively related to the size of money demand. Therefore, everything that affects the demand for money can affect the cash ratio. For example, the decline in the interest rate on bank deposits leads to a reduction in interest-earning assets, and people will reduce their deposits in banks and prefer to hold more cash, which increases the cash ratio. The cash ratio is negatively related to the currency multiplier. The higher the cash ratio, the more cash flows out of the deposit currency's expansion process and flows into daily circulation. Therefore, it directly reduces the amount of bank's loanable funds, restricts the ability to derive deposits, and the currency multiplier The smaller the number.