Far and above the most valuable liquidity ratio is the operating cash ratio. Unlike the other liquidity ratios that are balance sheet derived, the operating cash ratio is more closely connected to activity (income statement based) ratios than the balance sheet.
The cash ratio is liquidity measurement tool designed to evaluate the immediate ability of an enterprise to pay its current liabilities. The ratio is all cash and cash equivalents divided by current liabilities. Sophisticated business users will rarely give credence to this particular ratio due to its inherent limitations.
One of the liquidity ratios used in business is the cash ratio. It is a much more effective tool for small business than the traditional current or quick ratio. Although the cash ratio is more difficult to manipulate in small business, most entrepreneurs miscalculate the result. This resource paper is designed to explain to the business entrepreneur …