The Cash-to-Current-Assets (C to A), also known as the Debt Ratio, is a measure of a company’s debt relative to its current assets. This ratio is commonly used to compare the financial health of a company to its subsidiaries, and to assess the ratio of debt to cash the company has on hand.
The Cash to Current Assets Ratio (also referred to as Cash to Debt Ratio) is a Ratio used by banks, brokers, analysts, and investors to determine the value of the firm. The formula for this ratio is: Cash / Current Assets = Cash / Debt Here is an example, using a blog called “Hacker News”. “
This is a detailed guide to calculating the cash to current assets ratio with detailed interpretation, analysis and example. You will learn how to use the formula to evaluate a company’s liquidity.
The cash and cash equivalents to current assets ratio indicates the proportion of the company’s total current assets represented by the most liquid assets – cash and cash equivalents and securities.
To understand the value of this ratio, we must first look at the company’s current assets.
Current assets are assets that can be immediately sold or consumed within less than twelve months. They are used for the day-to-day operation of the company.
Although they may vary according to the nature of the business, current assets generally consist of the following:
- Cash and cash equivalents – Available for immediate use
- Short-term investments – Includes marketable securities, debt securities and other liquid investments.
- Receivables – money owed by a business for selling goods and services to customers on credit.
- Inventory – includes raw materials, work in progress and finished goods that will eventually be sold to customers.
- Prepaid expenses – Includes payments for goods and services not yet received.
Now that we know the different components of a company’s current assets, let’s look at the formula for calculating the cash to current assets ratio.