Cash ratio
Principles of Finance glossary · Financial Statements, Markets & Working Capital
Definition
Cash and marketable securities divided by current liabilities; the strictest liquidity ratio.
Cash ratio in plain English
This is a blunt test of whether a company could pay off its short-term bills using only the cash it has right now. "Marketable securities" just means investments so easy to sell they're basically as good as cash. You divide that by the bills due soon ("current liabilities"), so a ratio of 1 means it has exactly enough cash on hand to cover them. It's the toughest liquidity check because it ignores money the company is still waiting to collect — like asking "if every bill came due today, could you pay purely from what's in your wallet?"
Practice Cash ratio
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