Cash Ratio Formula used by the creditors to find the efficiency of the company whether the company can pay off its current obligations with cash or cash equivalent or not. Cash Ratio Formula calculated by the sum of cash and cash equivalent and divide it by the total current liabilities of the company
Cash Ratio = ( Cash + Cash Equivalent )/ Total Current Liabilities
On the balance sheet, most of the companies list the cash and cash equivalent together. Some list both separately on the balance sheet. Cash equivalents are the assets or investment which can be converted in the cash within 90 days. Current Liabilities of the company are separate from the long term liabilities on the balance sheet. You can learn about the definition of Cash ratio.
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