• The cash ratio is a measure of liquidity that measures a company’s ability to pay off its short-term liabilities using only cash and cash equivalents.

  • The cash ratio is obtained by adding up a company’s total cash and near-cash reserves and dividing that amount by its total current liabilities.
  • The cash ratio is more conservative than other liquidity ratios as it takes into account only the company’s most liquid resources.
  • A score greater than 1 means the company has more cash than current debt, and a score less than 1 means the company has more short-term debt than cash.
  • Lenders, lenders and investors use the cash ratio to evaluate a company’s short-term risk.