Cash Ratio Calculator
Enter cash and cash equivalents and current liabilities to find the cash ratio, the share of short-term bills cash covers and the surplus or shortfall.
Updated
Cash Ratio Calculator
Our Cash Ratio Calculator shows whether a business could pay its short-term bills using only the cash it already holds. Enter cash and cash equivalents and current liabilities, and it gives the cash ratio, the share of those bills that cash covers and the surplus or shortfall. It is made for business owners, lenders, investors, analysts and finance students.
Quick answer
The cash ratio is (cash + cash equivalents) ÷ current liabilities: 30,000 ÷ 40,000 = 0.75, so cash covers 75% of the short-term bills.
- 1 or more: cash alone pays every current liability.
- Below 1: part of the bills depends on other assets or new cash.
- Strictest liquidity ratio: receivables and inventory are left out.
- Very high: safe, but cash may be sitting idle.
What Is the Cash Ratio?
The cash ratio is the most conservative liquidity ratio. It compares the cash a business holds right now with the debts and bills it must pay within a year, and asks one question: could those bills be paid today without collecting from customers or selling stock?
= (Cash + Cash equivalents)
÷ Current liabilities
- Cash: notes and coins on hand plus bank balances you can use at once.
- Cash equivalents: very short-term, low-risk holdings such as money market funds and treasury bills that mature within about three months.
- Current liabilities: amounts due within a year, such as accounts payable, short-term loans, accrued wages and the current part of long-term debt.
Some analysts also add marketable securities to the top line. If you do, use the same version for every company or year you compare.
How to Calculate the Cash Ratio
A small wholesaler has 30,000 in its bank accounts and money market fund and 40,000 of current liabilities:
= 0.75
- Add cash and cash equivalents. 30,000, from the balance sheet.
- Find current liabilities. 40,000, from the same balance sheet.
- Divide. 30,000 ÷ 40,000 = 0.75.
- Find the gap. 40,000 − 30,000 = 10,000 not covered by cash.
The wholesaler holds 0.75 of cash for every 1.00 it owes in the short term. Cash covers 75% of the bills, and the remaining 10,000 would have to come from customer payments, stock sales or a credit line.
Cash Ratio Examples
Online retailer. Cash and cash equivalents are 23,500 and current liabilities are 3,000:
≈ 7.83
Cash covers the bills almost eight times over, a surplus of 20,500. That is very safe, but some of the cash might earn more if it were invested in the business.
Seasonal shop. Cash is 8,000 and current liabilities are 12,000 just before the busy season:
≈ 0.67
Cash covers about two thirds of the bills, a shortfall of 4,000 that holiday sales are expected to fill.
Manufacturer. Cash is 45,000 and current liabilities are 150,000:
= 0.3
| Cash ÷ Liabilities | Cash ratio |
|---|---|
| Online retailer 23,500 ÷ 3,000 | ≈ 7.83 |
| Wholesaler 30,000 ÷ 40,000 | 0.75 |
| Seasonal shop 8,000 ÷ 12,000 | ≈ 0.67 |
| Manufacturer 45,000 ÷ 150,000 | 0.3 |
These are made-up scenarios, not industry averages. A manufacturer with large stock and receivables can run a low cash ratio and still be healthy.
What Is a Good Cash Ratio?
| Cash ratio | Rough reading |
|---|---|
| Below 0.5 | Most bills depend on other assets or new cash. |
| 0.5 to 1 | Cash covers part of the bills. |
| 1 to 2 | Cash covers every bill. |
| Above 2 | Very strong, but cash may be idle. |
These bands are a rough guide, not a standard. Many sound companies run a cash ratio below 1 because they expect to collect receivables and sell stock before their bills fall due. Compare the ratio with similar businesses and with the same business in earlier periods: a ratio that keeps falling is a warning sign even if it is still above 1.
Cash Ratio vs Quick Ratio vs Current Ratio
| Ratio | Assets on top |
|---|---|
| Current ratio | All current assets, including inventory. |
| Quick ratio | Cash, securities and receivables. |
| Cash ratio | Cash and cash equivalents only. |
All three divide by current liabilities. Each step down the table removes assets that take longer to turn into cash, so for the same company the cash ratio is the lowest of the three and the strictest test.
Common Mistakes
- Counting receivables or stock. They belong in the quick or current ratio, not the cash ratio.
- Counting restricted cash. Cash pledged as security or held for a set purpose cannot pay ordinary bills.
- Using total liabilities. Only amounts due within a year go on the bottom.
- Mixing dates. Take both figures from the same balance sheet.
- Reading it alone. One low figure is not a crisis; look at the trend and the industry.
Key Terms
- Cash equivalents
- Short-term, low-risk investments that turn into cash within about three months.
- Current liabilities
- Obligations due within one year.
- Liquidity
- How easily a business can meet its short-term bills.
- Quick ratio
- Cash, securities and receivables ÷ current liabilities.
- Current ratio
- All current assets ÷ current liabilities.
How to Use the Cash Ratio Calculator
- Enter cash and cash equivalents. Type the cash on hand, bank balances and cash equivalents from the balance sheet, such as 30,000. Commas are fine.
- Enter current liabilities. Type the total of obligations due within a year from the same balance sheet, such as 40,000.
- Read and copy the result. The cash ratio appears as you type, with the working, the percentage of bills covered, the surplus or shortfall and a bar when cash falls short. Press Copy to copy it, or Clear or Esc to start again.
Example: cash and cash equivalents 23,500 and current liabilities 3,000. The result is about 7.83, from 23,500 ÷ 3,000 ≈ 7.83, a surplus of 20,500.
Who Can Use This Calculator?
Frequently Asked Questions (FAQs)
How do you calculate the cash ratio?
Add cash and cash equivalents, then divide by current liabilities. Cash ratio = (cash + cash equivalents) ÷ current liabilities. Take both figures from the same balance sheet.
What is the cash ratio for 30,000 of cash and 40,000 of current liabilities?
It is 0.75. 30,000 ÷ 40,000 = 0.75, so cash covers 75% of the current liabilities and leaves a shortfall of 10,000.
What is a good cash ratio?
A ratio of 1 or more means cash alone could pay every current liability. Many healthy companies run below 1 because they also collect receivables, so compare with similar businesses and with earlier periods rather than one fixed target.
What counts as cash equivalents?
Short-term, low-risk investments that can be turned into a known amount of cash within about three months, such as money market funds and treasury bills. Shares, long-term investments, receivables and inventory are not included.
How is the cash ratio different from the quick ratio?
The quick ratio also counts marketable securities and accounts receivable. The cash ratio counts only cash and cash equivalents, so it is lower and stricter.
Can the cash ratio be too high?
Yes. A very high ratio is safe but can mean cash is sitting idle instead of being invested, used to repay debt or returned to owners.
Is the Cash Ratio Calculator free?
Yes. It is completely free, needs no sign-up, and can be used as many times as you like.
Sources
- Corporate Finance Institute. Cash Ratio.
- Wall Street Prep. Cash Ratio: Formula and Calculator.
- OpenStax. Principles of Finance, 6.3 Liquidity Ratios.
- WallStreetMojo. Cash Ratio.
- Xero. Liquidity ratios: types, formulas and how to use them.
- Wikipedia. Cash and cash equivalents.
Try our Cash Ratio Calculator to see how much of your short-term bills cash alone can cover.