Cash ratio is yet another liquidity measure and it’s the most stringent compared to other ratios since it adds the short term investments or marketable securities with the case available and then it’s compared against current liabilities. The short term investments are liquid and show the amount of actual liquid cash the company has in hand that can be used to back the current liabilities.
This is the cash in the most liquid form the company has to compensate its current liabilities. Tesco has a cash ratio of 0.14 in 2005, 0.19 in 2006, 0.15 in 2007, 0.22 in 2008 and 0.29 in 2009. This shows the company had less cash in hand since this is the most liquid form since the cash ratio is low in the earlier years but again it shows a growing trend and in the year 2009 it shows the company has a good amount of cash in hand thus liquidity of the company has improved every year and this is a very promising sign for investors thus this is what has attracted so many investors to Tesco driving up the stock price for 2009.
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