Cash Ratio
The cash ratio is a liquidity ratio that measures a company’s ability to pay off its short-term debt obligations using only its cash and cash equivalents (highly liquid assets). This ratio provides a conservative view of a company's financial health, as it focuses only on the most liquid assets. The formula for calculating the cash ratio is: Cash Ratio = (Cash + Cash Equivalents) / Current Liabilities. A higher cash ratio indicates a company is in a stronger position to cover its short-term debts without relying on selling other assets.
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