Final answer:
The ratio of cash to noncash assets provides an indication of a company's ability to meet its short-term obligations and manage unexpected expenses.
Step-by-step explanation:
The ratio of cash to noncash assets provides some indication of a company's ability to meet its short-term obligations. Cash is the most liquid asset, meaning it can easily be converted into cash to pay off debts or cover expenses. Noncash assets, such as inventory or property, are less liquid and may take longer to convert into cash.
For example, let's say a company has a high ratio of cash to noncash assets, indicating that it has a large amount of cash on hand relative to its noncash assets.
This suggests that the company is well-prepared to handle unexpected expenses or quickly pay off its debts. On the other hand, if a company has a low ratio of cash to noncash assets, it may struggle to meet its short-term obligations and may need to rely on borrowing or selling noncash assets to generate cash.
Overall, the ratio of cash to noncash assets is an important measure of a company's liquidity and financial health.