# Cash Ratio

Liquidity ratios Print Email

Cash ratio (also called cash asset ratio) is the ratio of a company's cash and cash equivalent assets to its total liabilities. Cash ratio is a refinement of quick ratio and indicates the extent to which readily available funds can pay off current liabilities. Potential creditors use this ratio as a measure of a company's liquidity and how easily it can service debt and cover short-term liabilities.

Cash ratio is the most stringent and conservative of the three liquidity ratios (current, quick and cash ratio). It only looks at the company's most liquid short-term assets – cash and cash equivalents – which can be most easily used to pay off current obligations.

## Calculation (formula)

Cash ratio is calculated by dividing absolute liquid assets by current liabilities:

Cash ratio = Cash and cash equivalents / Current Liabilities

Both variables are shown on the balance sheet (statement of financial position).

## Norms and Limits

Cash ratio is not as popular in financial analysis as current or quick ratios, its usefulness is limited. There is no common norm for cash ratio. In some countries a cash ratio of not less than 0.2 is considered as acceptable. But ratio that are too high may show poor asset utilization for a company holding large amounts of cash on its balance sheet.

## Exact Formula in the ReadyRatios Analytic Software

Cash ratio = F1[CashAndCashEquivalents] / F1[CurrentLiabilities]

F1 – Statement of financial position (IFRS).

## Industry benchmark

Average values for the ratio you can find in our industry benchmarking reference bookCash ratio.

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Quote Guest, 28 December, 2011
How to calculate cash ratio from a balance sheet that has no cash ?
Quote , 28 December, 2011
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Guest wrote:
How to calculate cash ratio from a balance sheet that has no cash ?

If there are is cash or cash equivalents, cash ratio = 0.
Quote Guest, 3 May, 2012
how to compute owners equity as a ratio of business
Quote , 4 May, 2012
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how to compute owners equity as a ratio of business
Equity is not a ratio, but monetary item. It can be taken from Balance sheet (Statement of financial position).
Quote pasha, 10 July, 2013
how do i account for CROSI  is it in percentae form?
Quote Guest, 28 July, 2013
What does Cash/Total Assets =
Quote , 29 July, 2013
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What does Cash/Total Assets =
= Share of cash in total assets :)
Quote Guest, 15 April, 2014
how to calculate the cash and portfolio investment to deposits
Quote Guest, 6 January, 2015
what are cash equivalents?
Quote , 6 January, 2015
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