Fundamental Glossary / Debt & Financial Stability
Cash Ratio
Cash and equivalents divided by current liabilities.
Formula
Cash and cash equivalents / current liabilities.
What it means
The cash ratio is the strictest liquidity test. It asks whether cash on hand covers current liabilities with no collection and no sale of stock.
Most healthy operating companies do not hold cash equal to every current liability, so a ratio well below 1 is common and not by itself a problem.
How to read it
A very low cash ratio together with short-term debt coming due and weak operating cash flow is the combination that matters. The ratio alone is a blunt tool.
What to watch
Overdrafts are sometimes netted against cash and sometimes shown as debt. That presentation choice moves both the numerator and the liabilities.
This note explains the term. It is not a research recommendation, a target price, or a comment on any security. Ratios and regulatory thresholds change; use the latest filing or circular for a live figure.