Measure a company's ability to cover current liabilities using only cash and cash equivalents, the most conservative liquidity test.
Cash on hand and in bank accounts
Treasury bills, money market funds, short-term government bonds
All obligations due within one year
The cash ratio is the most conservative liquidity measure. It only considers the most liquid assets (cash and equivalents) to cover current liabilities.
Cash Ratio
Total Cash & Equivalents
Coverage Gap / Surplus
Above 1.0 = strong liquidity | 0.5 - 1.0 = adequate | Below 0.5 = potentially weak
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