Cash Ratio

Knowledge Center

Measuring liquidity. Explanation of Cash Ratio.

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 -

Special Interest Group - Cash Ratio Special Interest Group (47 members)

Forum - Cash Ratio   Here you will find interesting and educational discussions.   Too much Liquidity? Decapitalization Strategies (1 reactions) In Strategy+Business, Issue 46, Spring 2007, BAH VP Justin P...           What is CRR in Banking? (1 reactions) What is meant with CRR in banking?...           Cash to Total Assets Cash to Total Assets Ratio? ...           What is the Cash to Inventory Ratio? Definition Hi, what is the Cash to Inventory Ratio? Thanks for your hel...           What is the Cash to Liabilities Ratio? Definition Hi I am looking to find out what is the Cash to Liabilities ...           When is Cash Ratio Good? Rule of Thumb (2 reactions) What is a good cash ratio? When can we generally consider a ...

Best Practices - Cash Ratio Here you will find the most valuable ideas.

Expert Tips - Cash Ratio Here you will find high-quality advice from experts.   Decapitalization Strategies Things to do when Liquidity is too High...       Net Income vs. Cash Flow Financial Statement Analysis...       Limitations of Cash Flow From Operations Financial Statement Analysis...       Accelerating Cash Flow Velocity Cash Management...

Resources - Cash Ratio Here you will find powerpoint presentations, micro-learning videos and further information sources. 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...   Quickly Reading a Profit and Loss Statement and a Balance Sheet Profit and Loss Statement Analysis, Analyzing a P&L...   Cash Ratio Diagram Measuring Liquidity...     News about Cash Ratio         News about Measuring Liquidity         Videos about Cash Ratio         Videos about Measuring Liquidity         Presentations about Cash Ratio         Presentations about Measuring Liquidity         Books about Cash Ratio         Books about Measuring Liquidity         More about Cash Ratio         More about 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

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

More Management Methods, Models and Theory