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How is the cash ratio calculated?

Marketable securities + Current liabilities

Current assets + Inventory

Cash + Marketable securities / Current liabilities

The cash ratio is a liquidity measure that indicates a company's ability to pay off its current liabilities using only its most liquid assets, specifically cash and cash equivalents. It is calculated by taking the sum of cash and cash equivalents (which includes marketable securities) and dividing that total by the current liabilities of the company.

This ratio is particularly conservative as it only considers cash and marketable securities, excluding other current assets such as inventory, accounts receivable, or other non-liquid assets, which may not be as readily convertible to cash. As such, the cash ratio provides insight into a company's immediate liquidity position, revealing how well it can handle short-term obligations with its liquid resources.

Hence, the formula reflecting this calculation—cash plus marketable securities divided by current liabilities—accurately represents the cash ratio.

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Cash / Current assets

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