Cash Ratio

Cash ratio equation

The cash ratio is an indicator of the capability of a business to pay off liabilities. It's the ratio of what your business has at its disposal. The parameters involved are cash and current liabilities.

Cash, be literally or an equivalent in investment, is the amount a business has at its disposal. While Current Liabilities are the number of debts of a business at a period. This ratio is fair when there is a higher cash amount than the liabilities.

Cash ratio is calculated as Cash ÷ Current Liabilities.