The Cash Ratio is a financial metric that measures a company's ability to pay off its short-term liabilities using its most liquid assets, specifically cash and cash equivalents. It is calculated by dividing cash and cash equivalents by current liabilities. A higher cash ratio indicates a stronger liquidity position, meaning the company can easily cover its debts. This ratio is particularly important for investors and creditors as it provides insight into a company's financial health. Unlike other liquidity ratios, the cash ratio focuses solely on cash, making it a conservative measure of liquidity. It helps assess the risk of insolvency in times of financial stress.