The net cash formula is cash minus the liabilities. It is often used in business much like the current ratio. It determines a company’s ability to pay off its obligations. You can also use it to determine the amount of cash remaining after different transactions.
Net cash is generally used in testing for a company’s ability to pay off its liabilities. Many investors use this because it is an easy measure and understand if an investment is suitable for taking on. If a company can pay off all or the majority of its liabilities with solely cash then the investment can be considered safe. Its ratio can also be used to determine how much debt a company can take on to support operations or projects. If a company is looking at transactions then it can tell how profitable those particular transactions are for the company. It can also tell whether or not it is suitable for a company to continue going through those transactions.
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