Creating a Revenue Model
A financial model is often called a “model of models.” This is because there are several parameters which go through a series of complex calculations themselves. Revenue is a perfect example of one such parameter. For the financial model as a whole, the revenue number is just one of the many inputs required for the […]
Internal Causes of Organization Decline
External causes are considered to be the number one reason behind the organizational decline. However, they do not work in isolation. In reality, there are many causes that exist within the organization as well. In this article, we will have a closer look at the top two internal causes which are known for causing a […]
Private Equity Investments in the Sports World
Sporting franchises across the world have traditionally been owned by wealthy individuals. This has largely been because of the fact that sporting franchises have been viewed less as financially viable investments and more as vanity toys. However, all this has started changing in the wake of stellar returns provided by sporting franchises in the recent […]
Key Performance Indicators for Startups
Entrepreneurs as well as people in the general market are often left perplexed about how investors decide to value any company. It is common for two companies with very similar asset bases and value propositions to receive a very different valuation from investor groups. This may seem confusing to common people and the entire valuation […]
The Deutsche Bank Commerzbank Merger
Deutsche Bank which, which was once a dominant German financial institution has now become extremely fragile. This German bank managed to make it past the great recession of 2009. However, the bank has been facing one challenge after another ever since the recession got over. At the present moment, the bank is functional and solvent. […]
The cash ratio is limited in its usefulness to investors and financial analysts. It is the least popular of the liquidity ratios and is used only when the company under question is under absolute duress. Only in desperate circumstances do situations arise where the company is not able to meet its short term obligations by liquidating its inventory and receivables and this is when the cash ratio comes handy.
Cash Ratio = (Cash + Cash Equivalents + Marketable Securities) / Current Liabilities
The cash ratio indicates the amount of cash that the company has on hand to meet its current liabilities. A cash ratio of 0.2 would mean that for every rupee the company owes creditors in the next 12 months it has 0.2 in cash. 0.2 is considered to be the ideal cash ratio.
The cash ratio is the most stringent of all liquidity ratios. Hence there are no assumptions made. The cash and cash equivalent figures stated on the balance sheet are facts and so are the current liabilities stated on the balance sheet. Hence there is no assumption about future events that need to occur as per the company’s plan.
The nearest the cash ratio gets to an assumption is that it believes that marketable securities and cash equivalents can be quickly liquidated. Under normal circumstances this is always the case. The only case where liquidation of these securities would be an issue would be the complete failure of the economic system.
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Cash Flow to Debt Ratio – Meaning, Formula, Assumptions and Interpretation
February 12, 2025
