Cash Ratio

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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 -

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

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Resources - Cash Ratio 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 com...   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: ...   Cash Ratio Diagram Measuring Liquidity Download and edit the 12manage PowerPoint model for limited personal, educational and business use. ...     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

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