Cash ratio

The Cash ratio is a liquidity metric that measures a company's ability to pay its short-term debts using its cash and short-term investments. It indicates the proportion of a company's current liabilities that can be immediately paid off with its liquid assets.

Cash Ratio = Cash & short term investments / Total current liabilities

If either Cash & short term Investments or Total current liabilities are negative, the Cash ratio calculation will be meaningless, and the result should be considered invalid or empty. This is because a negative value for cash and short-term investments implies that the company has no liquid assets, while a negative value for total current liabilities is not financially plausible.

A higher Cash ratio indicates that a company has sufficient liquid assets to meet its short-term obligations, reducing the risk of default. This is particularly important for bond investors, as it suggests that the issuer is more likely to meet its interest and principal payments. A Cash ratio of 1 or higher is generally considered good, as it indicates that the company can pay off all its current liabilities with its cash and short-term investments.