Cash Coverage Ratio

Introduction to Cash Coverage Ratio

The Cash Coverage Ratio (CCR) is a liquidity metric that measures a company's ability to cover its current liabilities using only its cash and cash equivalents. This is an important indicator of the financial health of a company and its ability to meet short-term obligations. In this formula, CCRrepresents the cash coverage ratio, cashAndCashEquivalentsis the total amount of cash and assets that can be immediately converted to cash, and currentLiabilitiesare the company's debts or obligations that are due within one year.

Parameter usage:

• cashAndCashEquivalents= cash and cash equivalents on the company's balance sheet
• currentLiabilities= total current liabilities on the company's balance sheet

Example valid values:

• cashAndCashEquivalents= 500
• currentLiabilities= 1000

Output:

• cashCoverageRatio= cash coverage ratio of the company

Data validation

cashAndCashEquivalents must be greater than or equal to 0. currentLiabilities must be greater than 0.

Summary

This metric is crucial for investors and creditors, as it provides insight into the company's short-term financial stability and its ability to promptly satisfy debt obligations.