Cash Ratio

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Cash ratio

The proportion of a firm's assets held as cash.

Cash Ratio

1. A ratio of a company's cash and liquid assets to its total liabilities. A cash ratio is a measure of company's liquidity and how easily it can service debt and cover short-term liabilities if the need arises. As a result, potential creditors use this ratio in determining whether or not to make short-term loans. It is also called the liquidity ratio and the cash asset ratio.

2. In banking, a ratio of a bank's cash and cash equivalents to its demand deposits. See also: Reserve requirement.

cash ratio

A type of current ratio measure that compares a firm's cash and cash equivalents with its current liabilities. A firm's cash ratio is a demanding test of its liquidity. Compare quick ratio.

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