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Cash Ratio Calculator

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Cash Ratio Calculation Examples

Company A

Cash: $50,000
Treasury Bills: $10,000
Marketable Securities: $5,000
Total Current Liabilities: $70,000

Cash Ratio = (50,000+10,000+5,000)/70,000 = 0.93

Company A Cash Ratio = 0.93

Company B

Cash: $100,000
Treasury Bills: $60,000
Marketable Securities: $0.00
Total Current Liabilities: $150,000

Cash Ratio = (100,000+60,000)/150,000 = 1.07

Company B Cash Ratio = 1.07

Cash Ratio Definition

Cash ratio is a company’s ratio of cash and cash equivalents to its total current liabilities. This formula is most often used to gauge a business’ liquidity. Potential investors or creditors frequently look to cash ratio when determining a company’s capacity to repay debts—including how much it could feasibly repay, and how much time it would need to do so.

  • Important Note: Cash ratio is known as an extreme assets ratio, since only immediate cash and cash equivalents are measured. Because accounts receivable and inventory are not included in this equation, cash ratio should only be used as a contributing tool in estimating a company’s total monetary worth.
  • Cash Equivalents: Cash equivalents are assets that can be converted to cash immediately when and if necessary. Examples include—but are not limited to—treasury bills and marketable securities.

Cash Ratio Formula

Cash Ratio

Useful Info

Most creditors and financial experts consider cash ratios of 1.00 and higher as representative of the optimal range. This ratio level indicates a company’s likelihood of being able to pay its current liabilities within an acceptable period of time.

Typical businesses, however, will commonly have a cash ratio of slightly less than 1.00. This is due to the fact that companies do not generally maintain cash and cash equivalents numbers which equal or exceed their liabilities—as existing idle funds can be utilized to generate more business or revenue.