Cash Ratio

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Measuring liquidity. Explanation of Cash Ratio.


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Calculating Cash Ratio formula

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

In Strategy+Business, Issue 46, Spring 2007, BAH VP Justin Petit argues that many companies are sitting on mountains of cash and need a decapitalizati...
Usage (application): Things to do when Liquidity is too High

Net Income vs. Cash Flow

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Usage (application): Financial Statement Analysis

Limitations of Cash Flow From Operations

Limitations of Cash Flow From Operations:
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Usage (application): Financial Statement Analysis

Accelerating Cash Flow Velocity

To accelerate cash flows, companies should address the following key areas:
- Optimize the sales cycle by allowing adjustments for seasona...
Usage (application): Cash Management

Resources - Cash Ratio Premium

3 Minute Introduction to Financial Ratio Analysis: Why do it and What are the Main Types?

Why financial ratio analysis?
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Usage (application): Types of Financial Ratios, Financial Ratio Analysis, Financial Ratio Types

Quickly Reading a Profit and Loss Statement and a Balance Sheet

This video explains that when we're reading a profit and loss statement as a director we should:
- Not focus on the figures as such, but on the E...
Usage (application): Profit and Loss Statement Analysis, Analyzing a P&L

Cash Ratio Diagram

Download and edit the 12manage PowerPoint model for limited personal, educational and business use. Republishing in intranets, websites, books, magaz...
Usage (application): Measuring Liquidity


Cash Ratio


Measuring Liquidity


Cash Ratio


Measuring Liquidity


Cash Ratio


Measuring Liquidity


Cash Ratio


Measuring Liquidity

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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