The cash ratio is a liquidity metric that measures a company's ability to cover its short-term liabilities using only its most liquid assets, specifically cash and cash equivalents. This ratio provides insight into the immediate financial health of a business, reflecting its capacity to meet obligations without relying on the sale of inventory or accounts receivable. It's a more conservative measure compared to other liquidity ratios, as it focuses solely on cash available, emphasizing the company’s liquidity position in financial analysis and comparative evaluations among firms.
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