1. What is the Cash Ratio?

The Cash Ratio is a liquidity ratio that measures a company's ability to pay off its short-term liabilities with its cash and cash equivalents. It's the most conservative liquidity ratio because it only considers the most liquid assets.

2. How Does the Calculator Work?

The calculator uses the Cash Ratio formula:

Where:

• Cash Equivalents — Highly liquid investments that can be converted to cash within 90 days (USD)
• Current Liabilities — Financial obligations due within one year (USD)

Explanation: The ratio shows how many times the company can pay its current liabilities using only cash and cash equivalents.

3. Importance of Cash Ratio

Details: A higher ratio indicates better short-term financial health. Creditors often look at this ratio to assess a company's ability to pay its short-term obligations.

4. Using the Calculator

Tips: Enter cash equivalents and current liabilities in USD. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good cash ratio?
A: A ratio of 1 or higher is generally good, meaning the company can cover all current liabilities with cash. However, very high ratios may indicate inefficient use of cash.

Q2: How does cash ratio differ from current ratio?
A: Current ratio includes all current assets, while cash ratio only considers the most liquid assets (cash and equivalents).

Q3: What are examples of cash equivalents?
A: Treasury bills, commercial paper, money market funds, and short-term government bonds with maturities ≤ 90 days.

Q4: Why might a company have a low cash ratio?
A: Possible reasons include heavy investment in inventory or receivables, or efficient cash management where minimal cash is kept on hand.

Q5: How often should cash ratio be calculated?
A: Typically calculated quarterly when financial statements are prepared, or more frequently for internal analysis.