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Finance GlossaryCash Ratio
Cash Ratio
Definition of Cash Ratio
A cash ratio measures a company’s ability to fulfill short-term debt obligations using only its cash and cash equivalents, which are known to have high liquidity. The formula for calculating cash ratio is:
Cash Ratio: Cash + Cash Equivalents / Current Liabilities
Cash Ratio: Cash + Cash Equivalents / Current Liabilities
Related Terms
Liquidity Trap
A Liquidity Trap is an economic event where the general public stashes cash in their bank savings account instead of investing in bonds because of the assumption that a rise in interest rates is imminent, even though interest rates are low.
Equity Market
The Equity Market is a place where shares are traded, money is raised, and stock is offered to investors. That's why it is divided into two categories:
- Primary Market: An equity market where shares are offered to investors for the first time through IPOs while fundraising also happens through private placements.
- Secondary Market: An equity market where shares, bonds, futures, options, more are traded
The primary market is typically over the counter but may be regulated in the case of exchange traded IPOs. The secondary market is often well-regulated as most securities listed are exchange traded.
Foreign Direct Investment
Foreign Direct Investment (FDI) is the act of acquiring a majority stake in a company located in a different country with the intention of assisting, growing, and managing the business.
FDIs and FPIs may seem similar but there is a major difference - lasting interest. When a company or investor obtains at least 10% control of foreign company with the intention of actively managing the business, it’s known as lasting interest.
A company that establishes a subsidiary in another country can also be classified as FDI. FDIs can also be made through mergers and acquisitions as well as collaborations with foreign companies
FDIs and FPIs may seem similar but there is a major difference - lasting interest. When a company or investor obtains at least 10% control of foreign company with the intention of actively managing the business, it’s known as lasting interest.
A company that establishes a subsidiary in another country can also be classified as FDI. FDIs can also be made through mergers and acquisitions as well as collaborations with foreign companies
Annual General Meeting
An Annual General Meeting or AGM is an event where a company’s board of directors presents the annual report, future outlook, and strategy to shareholders. AGMs serve as one of the few occasions when shareholders get to interact with a company’s board of directors.
Iceberg Order
An Iceberg Order is used to slice and execute large orders into multiple “legs”. Large orders have the potential to drastically affect stock prices and subsequently investor behaviour.
That’s why institutional investors or traders with a relatively large buy or sell order place an Iceberg Order, thus masking their total transaction value and effectively going under the radar.
Brokers and trading platforms offer Iceberg Orders as a feature, which is activated after a certain quantity of scrips or contracts are selected, typically above 100.
That’s why institutional investors or traders with a relatively large buy or sell order place an Iceberg Order, thus masking their total transaction value and effectively going under the radar.
Brokers and trading platforms offer Iceberg Orders as a feature, which is activated after a certain quantity of scrips or contracts are selected, typically above 100.
Comparable Company Analysis
Comparable Company Analysis (CCA) is a method used to evaluate a company’s value by comparing its essential metrics like EBIT, EBITA, and more with other companies.
The underlying assumption of CCA or “Comps” is that publicly traded companies from the same sector or industry will have similar metrics that are comparable.
The underlying assumption of CCA or “Comps” is that publicly traded companies from the same sector or industry will have similar metrics that are comparable.
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