
What is the Cash Ratio? Definition
The Cash Ratio method is a formula for measuring the liquidity of a company
by calculating the ratio between all cash and cash equivalent assets and all
current liabilities.
It excludes both inventory and accounts receivable in comparison to the
Current Ratio.
The Cash Ratio model measures only the most liquid of all assets against
current liabilities, and is therefore seen as the most conservative of the
three liquidity ratios.
Calculation of Cash Ratio
For the Cash Ratio formula, see the picture on the right.
This Cash ratio is also known as the Liquidity Ratio and Cash
Asset Ratio.
The formula is an indicator of the extent to which a company can pay its
current liabilities. Without relying on the sale of inventory, and without
relying on the receipt of accounts receivables.
A thing to remember when you are using the Cash Ratio formula is, that
it ignores the timing of both cash received and cash paid out.
Book: Steven M.
Bragg - Business Ratios and Formulas : A Comprehensive Guide
Book: Ciaran Walsh
- Key Management Ratios
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Decapitalization Strategies Things to do when Liquidity is too High In Strategy+Business, Issue 46, Spring 2007, BAH VP Justin Petit argues that many companies are sitting on mountains of ...
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Net Income vs. Cash Flow Financial Statement Analysis Cash Flow from Operations is a much better metric to assess a company’s financial health than Net Income, as cash flows ...
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Limitations of Cash Flow From Operations Financial Statement Analysis Limitations of Cash Flow From Operations:
1. Cash from operations does not include a charge for use of a firm’s operati...
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Accelerating Cash Flow Velocity Cash Management To accelerate cash flows, companies should address the following key areas:
- Optimize the sales cycle by allowing adju...
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Various sources of information regarding the Cash Ratio. Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops.
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3 Minute Introduction to Financial Ratio Analysis: Why do it and What are the Main Types? Types of Financial Ratios, Financial Ratio Analysis, Financial Ratio Types Why financial ratio analysis?
1. To compare the financial health of (similar) companies (which one is doin...
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Quickly Reading a Profit and Loss Statement and a Balance Sheet Profit and Loss Statement Analysis, Analyzing a P&L This video explains that when we're reading a profit and loss statement as a director we should:
- Not focus on the fig...
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Cash Ratio Diagram Measuring Liquidity Download and edit the 12manage PowerPoint model for limited personal, educational and business use.
Republishing in int...
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Compare with: Current Ratio
| Quick Ratio |
Z-Score |
Cash Flow from Operations
| Dividend Payout Ratio
| Discounted Cash Flow |
Free Cash Flow |
Economic Value Added |
CFROI |
Return on Invested Capital
| Economic Margin
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