The Cash Ratio equation is used to compute or measure a company's  liquidity i.e. ability to pay off its current liabilities using only cash and cash equivalents.
A ratio above 1 means that all the current liabilities can be paid with cash and equivalents i.e the company is more liquid and can more easily fund its debt. A ratio below 1 means that the company needs more than just its cash reserves to pay off its current debt.
Creditors use this ratio to assure them that the loans disbursed will be repaid.