Question

In accounting and finance, what is the standard Cash ratio? What does mean to be high or low

Answer 1

Standard cash ratio is the cash ratio which seems to be optimum in the industry. However there is no ideal figure available as it depends upon the lot of factors such as ratio of credit sales etc.

Cash Ratio is calculated by dividing current assets by current liabilities.

Cash Ratio = Current Assets/Current Liabilities

High cash ratio means availability of lot cash and cash equivalents to organisation and creditors prefers to high cash ratio as it indicates ability of organisation to pay off its debts.

Low cash ratio means organisation has cash and cash equivalents less than the optimum level determined in the industry.