The Cash Ratio Calculator is designed for financial analysts and corporate finance professionals to quickly assess a company's liquidity position. Enter your company's cash and cash equivalents along with current liabilities to determine the cash ratio, which indicates the ability to cover short-term obligations.
All calculations are based strictly on the formulas and data provided by authoritative financial standards. For more detailed methodologies, please refer to the CFA Institute's guidelines.
Cash Ratio Formula: \[\text{Cash Ratio} = \frac{\text{Cash and Cash Equivalents}}{\text{Current Liabilities}}\]
Consider a company with cash and cash equivalents of $500,000 and current liabilities of $1,000,000. The cash ratio is calculated as follows:
Cash Ratio = 500,000 / 1,000,000 = 0.5
This means the company has $0.50 in cash for every $1 of current liabilities.
The cash ratio is a liquidity ratio that measures a company's ability to cover its short-term liabilities with its cash and cash equivalents.
The cash ratio is calculated by dividing the total cash and cash equivalents by the total current liabilities.
The cash ratio provides insight into a company's liquidity and financial health, helping investors and analysts assess the risk of short-term financial distress.
A cash ratio of 1 or higher is generally considered good, indicating the company has enough cash to cover its short-term liabilities. However, too high a ratio might suggest inefficient use of resources.
Companies can improve their cash ratio by increasing cash reserves, reducing liabilities, or improving cash flow management.