Cash Ratio

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

Visit the Special Interest Group

Cash Ratio Forum

Yug - SA

When is Cash Ratio Good?

"What is a good cash ratio?"

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Ritu Singh - India

Cash to Inventory

"Cash to Inventory Ratio?"

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Ritu Singh - India

Cash to Liabilities

"Cash to Liabilities Ratio?"

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Ritu Singh - India

Cash to Total Assets

"Cash to Total Assets Ratio? "

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Lee Watson - US

Too much Liquidity?

"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: 1. Operating Liquidity (to finance work in progress) 2. Growth Capital (research, expansion,design, development, acquisitions) 3. Share Repurchases 4. Pension Funding 5. Dividends 6. Debt Reduction."

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Cash Ratio Education & Events

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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