Cash Ratio

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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

Calculating Cash Ratio formula

For the Cash Ratio formula, see the picture.

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

Special Interest Group

Cash Ratio Special Interest Group.

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Forum discussions about the Cash Ratio. Below you can ask a question about this topic, share your experiences, report a new development, or explain something.

🔥 What is CRR in Banking?
What is meant with CRR in banking?...
Comments1 comments
topic Cash to Total Assets
Cash to Total Assets Ratio? ...
topic What is the Cash to Inventory Ratio? Definition
Hi, what is the Cash to Inventory Ratio? Thanks for your help......
topic What is the Cash to Liabilities Ratio? Definition
Hi I am looking to find out what is the Cash to Liabilities Ratio? Can you explain it to me?...
topic When is Cash Ratio Good? Rule of Thumb
What is a good cash ratio? When can we generally consider a cash ratio as sufficient?...
Comments2 comments

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Best Practices

The best, top-rated topics about the Cash Ratio. Here you will find the most valuable ideas and practical suggestions.

🥇 Too much Liquidity? 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 decapitalization strategy. Decapitalization categories include: ...
Comments1 comments

Expert Tips

Advanced insights about the Cash Ratio. Here you will find professional advices by experts.


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 ...

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 ...

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...

Accelerating Cash Flow Velocity

Cash Management
To accelerate cash flows, companies should address the following key areas: - Optimize the sales cycle by allowing adju...
Information Sources

Various sources of information regarding the Cash Ratio. Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops.


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...

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...

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

Return to Management Hub: Decision-making & Valuation  |  Finance & Investing

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