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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
Management Discussion & Analysis (MD&A)
Management Discussion & Analysis (MD&A) is a section of a company’s annual or quarterly report where management explains financial results, conditions, and future outlook in their own words. Also, they provide context beyond raw numbers, liquidity, operations, risks, and strategic plans to help investors understand performance and prospects.
Foreign Portfolio Investment
A Foreign Portfolio Investment includes stocks, bonds, ETFs, derivatives, and other financial instruments from another country. Generally, FPIs do not give an investor the right to ownership or a controlling stake in any organization.
Instead, FPIs act as a passive income vehicle. That’s why FPIs are different to Foreign Direct Investment (FDI) in which an ownership stake is acquired with the intention of controlling and influencing business decisions.
Premium
In finance, a premium is the excess amount that the price of a security or asset is over its nominal value, intrinsic value, or its price in another market or context. For options, the premium is the price that a buyer pays for an option contract. In insurance, a premium is the sum of money that an individual or business is required to pay for an insurance policy. A stock may trade at a premium if the market price is higher than its book value, which often reflects strong growth potential or market optimism.
Momentum Investing
Momentum Investing is an investment approach that focuses on buying securities that have shown strong recent price performance and selling those with weak performance. The strategy is based on the idea that assets trending in one direction often continue moving that way for some time due to market behavior and investor psychology.
Advance Payment Guarantee/Bond
An Advance Payment Guarantee or Advance Payment Guarantee Bond is a contract issued by a third party willing to take responsibility for fulling the terms of an agreement or payments owed by one party to another.
The guarantee could be:
The guarantee could be:
- Primary: Indemnity (fulling payments)
- Secondary: Guarantee (assuring that the outcome will be met)
Derivatives Trading
Derivatives trading means buying and selling derivatives contracts like futures, options, swaps, and forwards either on an exchange or over the counter.
Trading derivatives means trading contracts that derive their value from an underlying asset like stocks, commodities, currencies, indexes, interest rates, and more.
The buyer of the contract can decide to take delivery to the underlying asset or offset it with an opposite contract.
Trading derivatives means trading contracts that derive their value from an underlying asset like stocks, commodities, currencies, indexes, interest rates, and more.
The buyer of the contract can decide to take delivery to the underlying asset or offset it with an opposite contract.
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