A very short-term creditor, such as a supplier who grants credit for only 30 days, is likely to be most interested in a firm's :
A very short-term creditor, like a supplier who grants credit for only 30 days, is primarily concerned with the liquidity and ability of the firm to pay its short-term obligations quickly. In this case, the most relevant ratio to assess a firm's ability to meet short-term obligations is the "cash ratio."
The cash ratio is a measure of a company's ability to pay off its short-term liabilities with its cash and cash equivalents. It is a more conservative measure of liquidity than the current ratio or quick ratio because it considers only the most liquid assets (cash and cash equivalents) to cover short-term obligations.
The formula for the cash ratio is:
Cash Ratio = (Cash and Cash Equivalents) / Current Liabilities
By using the cash ratio, a short-term creditor can assess whether the firm has enough readily available cash to meet its obligations within a short time frame, such as 30 days.
So, the answer "cash ratio" is appropriate for a very short-term creditor's assessment of a firm's ability to meet their credit terms quickly.
Related Question
View MorePromotion
Download Our Mobile Apps
