Cash Ratio Calculator
What Is the Cash Ratio?
The cash ratio is the strictest common measure of a company’s short-term liquidity. It compares only the most liquid assets—cash, cash equivalents, and marketable securities—to current liabilities due within the next 12 months. Unlike broader metrics such as the current ratio or quick ratio, the cash ratio ignores inventory and accounts receivable, asking a very conservative question: if all other cash inflows stopped today, how much of your short-term obligations could you cover immediately with cash on hand and near-cash instruments?
Because of this narrow focus, the cash ratio is especially useful for lenders, credit analysts, and conservative managers who care most about an organization’s ability to withstand sudden shocks, such as revenue interruptions, delayed customer payments, or short-term credit tightening.
Cash Ratio Formula
The basic formula for the cash ratio is:
Cash Ratio = (Cash and Cash Equivalents + Marketable Securities) ÷ Current Liabilities
Expressed in MathML, the same relationship can be written as:
Where:
- Cash and Cash Equivalents include physical cash, checking and savings accounts, and highly liquid instruments with very short maturities (often under three months) that are readily convertible to known amounts of cash.
- Marketable Securities are short-term investments that can typically be sold quickly in an active market, such as Treasury bills or high-quality commercial paper.
- Current Liabilities are obligations due within the next year, such as accounts payable, the current portion of long-term debt, short-term loans, and accrued expenses.
The calculator on this page applies this formula automatically. When you enter your figures and click “Calculate Cash Ratio,” it divides the sum of cash, cash equivalents, and marketable securities by your total current liabilities.
Worked Example
Consider a small manufacturer with the following balance sheet data:
- Cash and cash equivalents: $120,000
- Marketable securities (for example, Treasury bills): $30,000
- Current liabilities: $200,000
Step-by-step, the cash ratio is calculated as follows:
- Add the most liquid assets:
$120,000 + $30,000 = $150,000 - Divide by current liabilities:
$150,000 ÷ $200,000 = 0.75
Result: The company has a cash ratio of 0.75. This means it holds 75 cents in immediately available liquidity for every dollar of short-term obligations.
Using the calculator, you would enter 120,000 for cash and cash equivalents, 30,000 for marketable securities, and 200,000 for current liabilities. The result field will show a ratio of 0.75 and a short text summary describing that level of coverage.
How to Interpret Your Cash Ratio
There is no single “correct” cash ratio that applies to every organization. Industry norms, business models, and access to external financing all influence what is appropriate. However, the ranges below provide a general starting point for interpretation:
| Cash Ratio Range | Typical Interpretation |
|---|---|
| < 0.5 | Limited immediate liquidity. The organization has less than 50 cents of cash and near-cash assets for each dollar of current liabilities and may rely heavily on incoming receivables, inventory sales, or credit facilities. |
| 0.5 – 1.0 | Moderate cushion for many businesses. There is enough liquidity to cover 50% to 100% of short-term obligations without selling inventory or collecting receivables. Management should still monitor cash flow and credit access closely. |
| > 1.0 | Very strong immediate liquidity. The organization could, in principle, pay all of its current liabilities from cash and near-cash assets alone. This reduces short-term risk but can also indicate idle funds that might otherwise be invested in growth or debt reduction. |
These ranges are broad guidelines only. A capital-intensive business with stable access to bank lines may operate safely with a ratio well below 1.0, while a startup with unpredictable revenue may prefer to maintain a higher cash ratio as a buffer.
How Different Users Apply the Cash Ratio
Business owners and managers
- Short-term risk check: Use the ratio to gauge how exposed you are to delays in customer payments, unexpected expenses, or temporary drops in revenue.
- Planning liquidity targets: Set internal minimum cash ratio thresholds, then use forecasts to see how upcoming investments, loan repayments, or seasonal swings will affect your liquidity.
- Communicating with stakeholders: Present the ratio alongside cash flow projections when talking to lenders, investors, or board members about risk management.
Lenders and investors
- Credit analysis: Compare an applicant’s cash ratio to peers and to your internal benchmarks as part of a broader assessment of repayment capacity.
- Stress testing: Model scenarios where receivables are delayed or inventory turns more slowly to see how much the organization would depend on existing cash balances.
- Trend review: Look at how the cash ratio has changed over several reporting periods, not just the latest snapshot, to detect improving or weakening liquidity.
Comparison With Other Liquidity Ratios
The cash ratio fits into a broader toolkit of liquidity metrics. Understanding how it differs from the current ratio and the quick ratio helps you interpret results in context.
| Ratio | Formula (simplified) | Assets Included | Conservatism | Typical Use |
|---|---|---|---|---|
| Current Ratio | Current Assets ÷ Current Liabilities | Cash, equivalents, marketable securities, receivables, inventory, and other current assets | Least conservative | High-level view of overall short-term coverage, especially for businesses with predictable inventory turnover. |
| Quick Ratio (Acid-Test) | (Cash + Marketable Securities + Receivables) ÷ Current Liabilities | Excludes inventory and many prepayments, but includes receivables | More conservative | Common in credit analysis where collectability of receivables is reasonably strong. |
| Cash Ratio | (Cash + Marketable Securities) ÷ Current Liabilities | Only cash, cash equivalents, and marketable securities | Most conservative | Stress testing, risk-averse analysis, and situations where immediate coverage is the primary concern. |
Seen in this context, the cash ratio is not a replacement for other measures but a complementary lens that focuses on extreme short-term resilience.
Limitations and Assumptions
While the cash ratio is powerful in its simplicity, it is important to recognize its limitations and the assumptions behind this calculator:
- Point-in-time snapshot: The ratio reflects a single moment based on the figures you enter. It does not capture seasonality, upcoming large payments, or expected cash inflows.
- Data quality depends on you: The calculator assumes your cash, securities, and liabilities figures are accurate and taken from up-to-date financial records. Outdated or estimated numbers will produce less meaningful results.
- No guarantee of market liquidity: Classifying an investment as a “marketable security” assumes it can be sold quickly at or near its recorded value. In stressed markets, that assumption may not hold.
- Industry differences: Appropriate cash ratio levels vary widely between industries and even between companies in the same sector. Always compare your result with relevant benchmarks and your own history.
- Ignores unused credit lines: Many organizations rely on committed bank facilities or other forms of short-term finance that are not reflected in the cash ratio.
- Not a profitability or solvency measure: A strong cash ratio does not necessarily mean the business is profitable or solvent over the long term; it only addresses immediate coverage of current liabilities.
- Informational, not advice: This calculator is for general information and educational purposes only. It does not provide accounting, investment, tax, or legal advice and does not consider your specific circumstances. Always consult a qualified professional before making significant financial decisions.
Use the cash ratio as one input among many when evaluating financial health. Combine it with cash flow forecasts, profitability metrics, debt ratios, and qualitative factors such as customer concentration and access to funding.