Cash Ratio Calculator
The strictest liquidity test: cash and equivalents divided by current liabilities, ignoring receivables and inventory entirely.
How it works
Cash ratio = (cash + cash equivalents) ÷ current liabilities
The cash ratio is the most conservative liquidity measure: it counts only cash and near-cash equivalents against current liabilities, stripping out receivables and inventory that may not convert to cash quickly or in full. It answers a blunt question — could the company pay off every short-term obligation today using only the money in the bank? A ratio of 1 or more is rare and often unnecessary, but a very low figure means the firm depends on collecting receivables or selling inventory to stay solvent.
Worked example
A company holds $150,000 in cash and equivalents against $300,000 of current liabilities. The cash ratio is 150,000 ÷ 300,000 = 0.50×, meaning cash on hand covers half of its immediate obligations.
Frequently asked questions
How is the cash ratio different from the quick ratio?
The quick ratio includes receivables and marketable securities alongside cash. The cash ratio excludes receivables entirely, counting only cash and equivalents — so it is always the lower and stricter of the two.
What is a good cash ratio?
There is no universal target. A ratio near or above 1 signals very strong liquidity but may mean idle cash; many healthy companies operate well below 1 because they can rely on steady incoming receivables.
Why would a company keep its cash ratio low?
Holding excess cash earns little return. Firms with dependable cash inflows deliberately keep the ratio modest and put spare cash to work in the business or return it to shareholders.
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Educational estimate, not investment advice.