Result
Cash ratio
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This calculation is for informational purposes only and does not replace advice from a qualified professional. Formulas and rates may not fit your exact situation — double-check the figures before making decisions.
How it is calculated
Cash ratio = cash and cash equivalents ÷ current liabilities. It's the strictest of the three liquidity ratios — unlike the current and quick ratios, it doesn't count even accounts receivable or other current assets that still need to be converted into cash.
The three liquidity ratios — current, quick, and cash — form a ladder from the most lenient test to the strictest: current ratio includes all current assets, quick ratio excludes inventory, cash ratio keeps only cash. Each step answers a tougher "what if this had to happen right now" question.
A low cash ratio isn't automatically alarming — a business doesn't need to hold cash equal to all its short-term debt sitting idle in accounts: that's an inefficient use of capital. A very high ratio, conversely, can mean cash is sitting unused instead of being put to work — invested in growth or earning a return.