Cash Ratio

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Cash Ratio calculator measures the ability to use its cash and cash equivalents to pay its current liabilities, an indicator of company’s short-term liquidity. Cash Ratio formula is:

 Cash Ratio formula

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Definitions and terms used in Cash Ratio Calculator

Cash
Refers to money in the physical form of currency. Cash includes money in the cash pan, petty cash, cash in the locker, bank account and customers’ checks.
Current Liabilities (short term debt)
Obligations or debts that are due within one fiscal year or the operating cycle. For example, accounts payable, accrued liabilities, dividends, unpaid taxes and other debts that are due within one year.

What is Cash Ratio

Cash Ratio is an indicator of company’s short-term liquidity. It measures the ability to use its cash and cash equivalents to pay its current financial obligations.

Cash Ratio formula is:

 Cash Ratio formula

Cash Ratio Analysis

Cash ratio measures the immediate amount of cash available to satisfy short-term liabilities. A cash ratio of 0.5:1 or higher is preferred.

Cash ratio is the most conservative look at a company’s liquidity since is taking in the consideration only the cash and cash equivalents.

Cash ratio is used by creditors when deciding how much credit, if any, they would be willing to extend to the company.