Definition – What is the Cash Ratio?
The Cash Ratio is a measurement of a firm’s ability to meet a short-term financial obligation.
Formula – How to calculate Cash Ratio
Cash Ratio = (Cash + Marketable Securities) / Current Liabilities
A company has cash of $3,000, marketable securities of $4,000, and current liabilities of $5,000.
Cash Ratio = ($3,000 + $4,000) / $5,000 = $7,000 / $5,000 = 1.4
Therefore, this company has a cash ratio of 1.4.
Sources and more resources
- Accounting Tools – Cash ratio – Explains the cash ratio, its formula, and an example of how it is calculated.
- Investopedia – Cash ratio – An explanation of what the cash ratio is and how it is calculated.
- Accounting Explained – Cash ratio – The cash ratio formula and an example calculation.
- The Balance SMB – What is the Cash Ratio, Cash Ratio Definition, and Cash Ratio Formula? – Some more information on the cash ratio.