Question

Conventional wisdom says that when the cash ratio exceeds 10 to 12%?, the ratio is sending a bullish signal. ? However, you may also argue? that, given the trend and how recent the? build-up in cash? is, the signal is bearish in the current time frame.

True or False

Answer 1

True.

Cash ratio is nothing but the ratio of ( cash+cash equivalents+marketable securities)/ current liabilities.

So conventionally if the ratio is more than 1 it will be good by sending a bullish signal that company is cash rich and always cash is available to meet short term needs.

But on the other side in current time frame it will send bearish signal because

A high cash ratio is not a good signal to company because when most of your cash is in idle position then you may not able to generate revenue from it.

We have to check whether cash received is earned or not or it is just advance we receive for our future services.

So in this way we can argue it as for both bullish and bearish signal.