What is the normal range for a cash ratio?

A cash ratio is a financial metric that measures a company's ability to pay off its short-term liabilities using only its cash and cash equivalents. This ratio is particularly important for assessing liquidity, as it provides insight into the most liquid assets a company possesses.

The normal range for a cash ratio is typically between 0.20 and 1.00. A cash ratio within this range indicates a healthy liquidity position, where the company has enough cash to cover a significant portion of its current liabilities, while also allowing for operating flexibility. Values below 0.20 suggest that a company may struggle to meet short-term obligations solely with its cash resources, making it more vulnerable to liquidity issues. Conversely, a cash ratio above 1.00 suggests that the company has more cash than it needs to cover its liabilities, which could imply that it is not efficiently utilizing its cash reserves for growth or investment purposes.

This range makes B the most relevant choice, reflecting a balance between having enough cash to meet obligations and the need for the company to invest its resources effectively.