### How to Calculate Cash Ratio

Cash Ratio is the ratio of a company's total cash and cash equivalents to its total short-term liabilities. It is an indicator of a company's ability to pay off its current liabilities. Note that this ratio ignores timing of both cash received and cash paid out.

Formula:
Cash Ratio = (Cash + Cash Equivalents) / Current Liabilities

Learn how to calculate the ratio with the following example:

IPO Ltd has the following data:
Cash in hand \$50,000
Bank \$65,000
Marketable securities \$15,000
Treasury bills \$25,000
Money market funds \$35,000
Accrued expenses \$80,000
Accounts Payable \$90,000
Notes Payable \$30,000

Then:
Cash and cash equivalents = Cash in hand + Bank + Marketable securities + Treasury bills + Money market funds = 50,000 + 65,000 + 15,000 + 25,000 + 35,000 = \$190,000
Total short-term liabilities = Accrued expenses + Accounts Payable + Notes Payable = 80,000 + 90,000 + 30,000 = \$200,000
Cash Ratio = 190,000 / 200,000 = 0.95

* Next: How to Calculate Price to Book Ratio