Cash Ratio

Brief Definition

Measures the ability to cover short-term obligations with cash and cash equivalents alone.

Further Explanation

Measures the ability to cover short-term obligations with cash and cash equivalents alone.

Cash Ratio = Cash and Cash Equivalents / Current Liabilities

Example:
If a company has $500,000 in current assets, $300,000 in current liabilities, and $100,000 in inventory:
Cash Ratio: Suppose the company has $30,000 current liabilities and $150,000 in cash and equivalents:
150,000 / 300,000 = 0.5