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Cash Ratio interpretation

Cash Ratio is an indicator of company's short-term liquidity. It measures the ability to use its cash and cash equivalents to pay its current financial obligations. Cash Ratio formula is:

Cash Ratio formula

Cash ratio measures the immediate amount of cash available to satisfy short-term liabilities. A cash ratio of 0.5:1 or higher is preferred.

Cash ratio is the most conservative look at a company's liquidity since is taking in the consideration only the cash and cash equivalents.

Cash ratio is used by creditors when deciding how much credit, if any, they would be willing to extend to the company.

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