Cash ratio
Cash ratio: cash and cash equivalents divided by current liabilities, the strictest liquidity measure of how much short-term debt could be repaid immediately without receivables or inventory.
See it move
A company reports cash and cash equivalents of €18,000 against current liabilities of €60,000. Its cash ratio is €18,000 ÷ €60,000 = 0.30, meaning cash alone could cover 30% of short-term obligations immediately, without collecting receivables or selling any inventory first.
The formula
Variables
- Cash and cash equivalents (€)
- Current liabilities (€)
Measures the proportion of current liabilities that could be settled immediately using only cash and cash equivalents.
Check yourself
A company reports cash of €12,000, a short-term money-market fund treated as a cash equivalent of €8,000, trade receivables of €30,000, inventory of €42,000, and current liabilities of €80,000. What is the cash ratio?