Finance Formulas / July 13, 2018 / Alia Marquez
The cash ratio is most commonly used as a measure of company's liquidity. The metric calculates a company's ability to pay current liabilities using only cash and cash equivalents on hand. If the company is forced to pay all current liabilities immediately, this metric shows the company's ability to do so without having to sell or liquidate other assets.
Spreading the cost over multiple accounting periods helps provide a clearer picture of how your expenditures compare with your earnings. It also ensures that your accounting complies with federal rules for calculating depreciation.
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