The cash ratio is measured as:
A) Current assets divided by current liabilities.
B) Current assets minus cash on hand, divided by current liabilities.
C) Current liabilities plus current assets, divided by cash on hand.
D) Cash on hand plus inventory, divided by current liabilities.
E) Cash on hand divided by current liabilities.

Question

Quizplus · Accepted Answer

The cash ratio is a liquidity ratio that measures a company's ability to pay off its short-term liabilities with its cash and cash equivalents. It is calculated by dividing the company's cash and cash equivalents by its current liabilities. Therefore, option E, which defines the cash ratio as "Cash on hand divided by current liabilities," is correct.

The Cash Ratio Is Measured As