The goal of finding a business’s cash ratio is to determine its ability to repay short-term debt with cash on-hand or near-cash resources, ultimately measuring liquidity. Financial analysts and investors often calculate a business’ cash ratio to reveal the worst-case scenario for a business’ future finances. In general, a good cash ratio is between 0.5 and 1, but the ideal figure can vary significantly from business to business.
A company can find its cash ratio using the following formula:
(Cash + Cash Equivalents) / Current Liability