Cash RatioView Financial Glossary Index
Cash Ratio is the amount of cash and short term equivalents a company has over current liabilities. The cash ratio is an effective and quick way to determine if a company could have potential short-term liquidity issues. If the cash ratio is under(over) 1, this implies that the company won't(will) have enough cash on hand to pay off current liabilities.
Other similar solvency ratios include :
Quick Ratio - Measures the amount of cash, short term equivalents, and accounts receivables that can be used to pay liabilities (more lenient than cash ratio, but stricter than current ratio)
Current Ratio - Measures the amount of current assets over current liabilities (most lenient).
The cash ratio is stricter that Acid/Quick test ratios, because the cash ratio does not include accounts receivables. While many companies often have cash ratios less than 1, this doesn't necessarily mean they face short term liquidity constraints. Accounts receivables are expected to eventually convert to cash, and companies often have lines of credit they can use if they need to pay off current liabilities.
YCharts calculates this formula by Cash and Short Term Equivalents over Current Liabilities.