Free Cash Ratio Calculator
Calculate the cash ratio to measure a company's ability to pay off short-term liabilities using only cash and cash equivalents.
Cash Ratio
0.67
Cash Ratio vs Cash and Cash Equivalents
How to Calculate the Cash Ratio
Formula
Cash Ratio = Cash and Cash Equivalents / Current Liabilities
The cash ratio is the most stringent liquidity metric. Unlike the current ratio or quick ratio, it only considers cash on hand and short-term investments that can be liquidated immediately. Most companies operate with a cash ratio below 1.0 because holding excessive cash is capital-inefficient. However, a very low cash ratio leaves little buffer for surprises.
Example Calculation
A company holds $200,000 in cash and equivalents and has $300,000 in current liabilities.
- 01Cash Ratio = $200,000 / $300,000 = 0.67
- 02Liability Coverage = 0.67 x 100 = 67%
- 03The company can cover 67% of short-term liabilities with cash alone.
Frequently Asked Questions
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