Cash Ratio Calculator
Measure your company's ability to pay short-term obligations with cash and cash equivalents
| Cash Ratio Range | Interpretation | Your Ratio | Status |
|---|---|---|---|
| Below 0.5 | Potential liquidity issues | - | - |
| 0.5 - 1.0 | Marginal liquidity | - | - |
| 1.0 - 2.0 | Healthy liquidity | - | - |
| Above 2.0 | Very strong cash position | - | - |
The cash ratio measures a company's ability to pay short-term obligations with only cash and cash equivalents. It's the most conservative liquidity ratio.
• Increase cash reserves
• Convert assets to cash
• Reduce current liabilities
• Improve cash flow management
• Declining ratio over time
• Large upcoming liabilities
• Ratio below 0.5
• Ratio significantly below industry average
A Cash Ratio Calculator is the most conservative measure of a company's ability to pay off its short-term obligations using only cash and cash equivalents—no receivables or inventory included. Banks and creditors use this to assess financial distress risk.
How the Cash Ratio Calculator Works
Cash Ratio Formula
Key Components:
Cash & Equivalents: Physical currency, bank deposits, money market funds
Marketable Securities: Treasury bills, commercial paper (liquid within 90 days)
Current Liabilities: Debts due within 1 year
Example Calculation
| Financial Data | Amount ($) |
|---|---|
| Cash | 50,000 |
| Treasury Bills | 20,000 |
| Commercial Paper | 10,000 |
| Total Liquid Assets | 80,000 |
| Current Liabilities | 100,000 |
| Cash Ratio | 0.8 (80,000 ÷ 100,000) |
Interpretation:
> 1.0: Can cover all short-term debts with cash (rare, may indicate idle cash)
0.5 - 1.0: Typical for healthy businesses
< 0.5: Potential liquidity crisis
Why Cash Ratio Matters
✅ Financial Stress Test – Worst-case scenario liquidity
✅ Loan Approvals – Banks require minimum cash ratios
✅ Investor Red Flag – Ratios < 0.2 often precede bankruptcy
Industry Benchmarks
| Industry | Typical Cash Ratio |
|---|---|
| Technology | 0.8 – 1.5 |
| Retail | 0.3 – 0.6 |
| Manufacturing | 0.2 – 0.5 |
| Banking | 0.1 – 0.3 (due to leverage) |
How to Improve Your Cash Ratio
✔ Build Cash Reserves – Retain earnings instead of dividends
✔ Convert Assets to Cash – Sell unused equipment/investments
✔ Refinance Short-Term Debt – Extend payment deadlines
✔ Secure Credit Lines – Emergency liquidity backup
Cash Ratio vs. Other Liquidity Ratios
| Ratio | Formula | What It Excludes |
|---|---|---|
| Cash Ratio | (Cash + Equivalents) ÷ CL | Receivables, inventory |
| Quick Ratio | (Cash + Receivables) ÷ CL | Inventory only |
| Current Ratio | All CA ÷ CL | Nothing (least strict) |
When to Use Cash Ratio
Economic downturns – Assess survival capability
High-debt industries – Airlines, construction
Startup funding rounds – Investors check "runway"
Real-World Example: Tesla (2023)
Cash & Equivalents: $22.4B
Current Liabilities: $26.5B
Cash Ratio: 0.85
Analysis: Healthy cushion, but not excessively liquid
Final Thoughts
The Cash Ratio is the ultimate "financial panic button" metric. While most businesses operate with ratios below 1.0, smart managers:
Monitor it monthly
Keep minimum 0.3-0.5 in cyclical industries
Pair it with cash flow forecasts
Need help calculating yours? Share your cash and liability figures below! 💸🔍