How liquid are you as an individual?
Not your, uh...percentage of water. We’re talking about your money.
Cash ratio is a simple accounting metric that tells you whether or not you’ve got enough cash or equivalents on hand to cover your debts. Basically, just add your cash on hand and then add up short-term assets that you can get rid of quickly. Those marketable securities include bonds, stocks, and anything else that can be sold within a year. CDs count as well, but people will make fun of you for owning those, so...don't shout about them from the rooftops.
Take all those liquid assets and divide it by your current liabilities, or debts you will owe within the next 12 months. That’s it. That’s the cash ratio.
You’re now 14,499 definitions away from becoming a financial wizard.
Related or Semi-related Video
Finance: What is the Acid Test Ratio/Qui...14 Views
finance a la shmoop - what is the acid test ratio or the quick ratio quick how
liquid are we now the quick ratio is a measure of how well or not so well a [Water coming out of a tap]
company is positioned to be able to quickly pay off the bills that it owes
aka its liabilities... why the quickly in there because the assets used to pay off
the liabilities need to be quickly available assets like cash or bank CD's
or publicly traded stocks or bills the company will collect the next ninety [Assets appear]
days or so from people likely to pay them well the company likely owns other
assets like a tractor smelting company but like is it really gonna sell that [Internet mouse cursor clicks search bar]
smelter to then pay off its bill to U.S steel for steel....Ok well the actual ratio
looks like this cash plus sellable securities plus money people owe the
company divided by liabilities so basically the quick ratio compares your
total liquid assets to how much you owe and it's important to note that you [Forklift drops inventory on factory floor]
don't count your current inventory as part of your assets as it's typically
hard to sell everything you have right at this moment and then not at some huge
discount the higher the quick ratio the healthier the liquidity position of the
company another good way to test your liquidity well stand in front of a [Man showering]
radiator and see how quickly you evaporate [Girl stood by a radiator and begins to melt]
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