Cash Ratio Calculator: Cash on Hand vs Short Bills

Is a cash ratio of 0.60 healthy?

On the defaults — $120,000.00 of cash, $30,000.00 of cash equivalents and $250,000.00 of current liabilities — the liquid cash is $150,000.00, the cash ratio is 0.60, the cash needed at the 1.00 target is $100,000.00, and the most current liabilities the 1.00 target allows are $150,000.00. The cash ratio — cash plus cash equivalents divided by current liabilities — is the strictest of the liquidity ratios: it counts only what a business could hand over tomorrow. Cash equivalents are short-term investments that turn into cash within 90 days: Treasury bills, money-market funds, commercial paper. A ratio of 1.00 means cash covers every dollar of current liabilities; below 1.00 the business leans on receivables and inventory to pay its bills; above 1.00 means cash is sitting idle instead of earning a return. A common healthy range is roughly 0.50–1.00 — most businesses run below 1.00 on purpose. Lenders read the cash ratio alongside the current and quick ratios before extending credit, because it shows the worst-case cushion with no selling and no collecting.

Five things about the model are worth stating plainly. First, the liquid cash is the cash plus the cash equivalents — $120,000.00 + $30,000.00 = $150,000.00. Second, the cash ratio is the liquid cash divided by the current liabilities — $150,000.00 ÷ $250,000.00 = 0.60. Third, the cash needed at the target is the target times the current liabilities minus the liquid cash — 1.00 × $250,000.00 − $150,000.00 = $100,000.00. Fourth, the most current liabilities allowed at the target are the liquid cash divided by the target — $150,000.00 ÷ 1.00 = $150,000.00. And fifth, the business is $100,000.00 short of full coverage — the shortfall is the target times the liabilities minus the liquid cash; all listed in Accuracy & limitations.

The worked example, line by line

Setup: $120,000.00 of cash, $30,000.00 of cash equivalents, $250,000.00 of current liabilities, target ratio 1.00.

Line 1 — the liquid cash. The liquid cash is $120,000.00 + $30,000.00 = $150,000.00.

Line 2 — the cash ratio. The cash ratio is $150,000.00 ÷ $250,000.00 = 0.60.

Line 3 — the cash needed. The cash needed at the 1.00 target is 1.00 × $250,000.00 − $150,000.00 = $100,000.00.

Line 4 — the most current liabilities allowed. The most current liabilities the 1.00 target allows are $150,000.00 ÷ 1.00 = $150,000.00.

Line 5 — the shortfall. The business is $250,000.00 − $150,000.00 = $100,000.00 short of full coverage.

Line 6 — the check. 0.60 × $250,000.00 = $150,000.00, the liquid cash; and $150,000.00 + $100,000.00 = $250,000.00, the current liabilities.

Every branch, checked

Current liabilities $150,000: Cash ratio 1.00; liquid cash $150,000.00; cash needed at the 1.00 target $0.00; most current liabilities allowed at the 1.00 target $150,000.00 — With current liabilities of $150,000.00 the liquid cash covers every dollar — the ratio is exactly 1.00, full coverage, and the cash needed at the 1.00 target is $0.00.

Cash $200,000: Cash ratio 0.92; liquid cash $230,000.00; cash needed at the 1.00 target $20,000.00; most current liabilities allowed at the 1.00 target $230,000.00 — With $200,000.00 of cash the liquid cash rises to $230,000.00 and the ratio rises to 0.92 — still $20,000.00 short of full coverage.

Cash equivalents $0: Cash ratio 0.48; liquid cash $120,000.00; cash needed at the 1.00 target $130,000.00; most current liabilities allowed at the 1.00 target $120,000.00 — With no cash equivalents the liquid cash is just the $120,000.00 of cash and the ratio falls to 0.48 — below the healthy range, so the business is leaning hard on receivables and inventory.

Current liabilities $300,000: Cash ratio 0.50; liquid cash $150,000.00; cash needed at the 1.00 target $150,000.00; most current liabilities allowed at the 1.00 target $150,000.00 — With $300,000.00 of current liabilities the ratio is 0.50 — the business holds $0.50 of cash for every $1.00 of short-term bills, the bottom of the healthy range.

Cash $220,000: Cash ratio 1.00; liquid cash $250,000.00; cash needed at the 1.00 target $0.00; most current liabilities allowed at the 1.00 target $250,000.00 — With $220,000.00 of cash the liquid cash is exactly $250,000.00 and the ratio is exactly 1.00 — the smallest whole-dollar cash that reaches the target.

Current liabilities $100,000: Cash ratio 1.50; liquid cash $150,000.00; cash needed at the 1.00 target $0.00; most current liabilities allowed at the 1.00 target $150,000.00 — With only $100,000.00 of current liabilities the ratio is 1.50 — cash is sitting idle instead of earning a return.

Cash $50,000, cash equivalents $0: Cash ratio 0.20; liquid cash $50,000.00; cash needed at the 1.00 target $200,000.00; most current liabilities allowed at the 1.00 target $50,000.00 — With $50,000.00 of cash and no cash equivalents the liquid cash is $50,000.00 and the ratio is 0.20 — the business could pay only a fifth of its short-term bills from cash.

The reverses, worked backwards

Smallest whole-dollar cash for the ratio to reach 1.00: At the displayed $220,000 the figures are Cash ratio 1.00; liquid cash $250,000.00; cash needed at the 1.00 target $0.00; most current liabilities allowed at the 1.00 target $250,000.00. At the displayed $220,000 the cash ratio is 1.00. At $219,999 the liquid cash is $249,999.00 — $1 short of the $250,000 needed — and the unrounded ratio is 0.999996, which displays as 1.00 after rounding, so $220,000 is the smallest whole-dollar cash that reaches the target.

Smallest whole-dollar cash for the ratio to reach 0.75: At the displayed $157,500 the figures are Cash ratio 0.75; liquid cash $187,500.00; cash needed at the 0.75 target $0.00; most current liabilities allowed at the 0.75 target $250,000.00. At the displayed $157,500 the cash ratio is 0.75. At $157,499 the liquid cash is $187,499.00 — $1 short of the $187,500 needed — and the unrounded ratio is 0.749996, which displays as 0.75 after rounding, so $157,500 is the smallest whole-dollar cash that reaches 0.75.

Largest whole-dollar current liabilities for the ratio to STAY at or above 1.00: At the displayed $150,000 the figures are Cash ratio 1.00; liquid cash $150,000.00; cash needed at the 1.00 target $0.00; most current liabilities allowed at the 1.00 target $150,000.00. At the displayed $150,000 the cash ratio is 1.00. At $150,001 the liquid cash is $1 short of the $150,000 needed for full coverage — and the unrounded ratio is 0.999993 approximately, which displays as 1.00 after rounding, so $150,000 is the largest whole-dollar current liabilities for the ratio to stay at or above 1.00.

Largest whole-dollar current liabilities for the ratio to STAY at or above 0.50: At the displayed $300,000 the figures are Cash ratio 0.50; liquid cash $150,000.00; cash needed at the 0.50 target $0.00; most current liabilities allowed at the 0.50 target $300,000.00. At the displayed $300,000 the cash ratio is 0.50. At $300,001 the liquid cash is $0.50 short of the $150,000.50 needed — and the unrounded ratio is 0.499998 approximately, which displays as 0.50 after rounding, so $300,000 is the largest whole-dollar current liabilities for the ratio to stay at or above 0.50.

Smallest whole-dollar cash equivalents for the ratio to reach 1.00: At the displayed $130,000 the figures are Cash ratio 1.00; liquid cash $250,000.00; cash needed at the 1.00 target $0.00; most current liabilities allowed at the 1.00 target $250,000.00. At the displayed $130,000 the cash ratio is 1.00. At $129,999 the liquid cash is $249,999.00 — $1 short of the $250,000 needed — and the unrounded ratio is 0.999996, which displays as 1.00 after rounding, so $130,000 is the smallest whole-dollar cash equivalents that reach the target.

Smallest whole-dollar cash for the ratio to reach 1.50: At the displayed $345,000 the figures are Cash ratio 1.50; liquid cash $375,000.00; cash needed at the 1.50 target $0.00; most current liabilities allowed at the 1.50 target $250,000.00. At the displayed $345,000 the cash ratio is 1.50. At $344,999 the liquid cash is $374,999.00 — $1 short of the $375,000 needed — and the unrounded ratio is 1.499996, which displays as 1.50 after rounding, so $345,000 is the smallest whole-dollar cash that reaches 1.50.

A warning about the neighbours: every neighbour above shows as the target when rounded to two decimals, but its unrounded ratio is short of the target. A lender underwriting on the unrounded ratio would still say no. The page prints the unrounded neighbour value in full so the rounding does not mislead you.

What the defaults assume

The defaults are $120,000.00 of cash, $30,000.00 of cash equivalents, $250,000.00 of current liabilities and a target ratio of 1.00 — Cash ratio 0.60; liquid cash $150,000.00; cash needed at the 1.00 target $100,000.00; most current liabilities allowed at the 1.00 target $150,000.00. With Current liabilities $150,000, Cash ratio 1.00; liquid cash $150,000.00; cash needed at the 1.00 target $0.00; most current liabilities allowed at the 1.00 target $150,000.00. With Cash $200,000, Cash ratio 0.92; liquid cash $230,000.00; cash needed at the 1.00 target $20,000.00; most current liabilities allowed at the 1.00 target $230,000.00. With Cash equivalents $0, Cash ratio 0.48; liquid cash $120,000.00; cash needed at the 1.00 target $130,000.00; most current liabilities allowed at the 1.00 target $120,000.00. With Current liabilities $300,000, Cash ratio 0.50; liquid cash $150,000.00; cash needed at the 1.00 target $150,000.00; most current liabilities allowed at the 1.00 target $150,000.00. With Cash $220,000, Cash ratio 1.00; liquid cash $250,000.00; cash needed at the 1.00 target $0.00; most current liabilities allowed at the 1.00 target $250,000.00. With Current liabilities $100,000, Cash ratio 1.50; liquid cash $150,000.00; cash needed at the 1.00 target $0.00; most current liabilities allowed at the 1.00 target $150,000.00. With Cash $50,000, cash equivalents $0, Cash ratio 0.20; liquid cash $50,000.00; cash needed at the 1.00 target $200,000.00; most current liabilities allowed at the 1.00 target $50,000.00. With Current liabilities $0, Cash ratio — (undefined: no short-term bills to cover); liquid cash $150,000.00; cash needed at the 1.00 target $0.00; most current liabilities allowed at the 1.00 target $150,000.00. With Cash $0, cash equivalents $0, Cash ratio 0.00; liquid cash $0.00; cash needed at the 1.00 target $250,000.00; most current liabilities allowed at the 1.00 target $0.00. With Cash $250,000, cash equivalents $0, Cash ratio 1.00; liquid cash $250,000.00; cash needed at the 1.00 target $0.00; most current liabilities allowed at the 1.00 target $250,000.00. With Cash $62,500, cash equivalents $12,500, current liabilities $100,000, Cash ratio 0.75; liquid cash $75,000.00; cash needed at the 1.00 target $25,000.00; most current liabilities allowed at the 1.00 target $75,000.00. With Cash $123,456, cash equivalents $54,321, current liabilities $200,000, Cash ratio 0.89; liquid cash $177,777.00; cash needed at the 1.00 target $22,223.00; most current liabilities allowed at the 1.00 target $177,777.00. With Current liabilities $1,000,000, Cash ratio 0.15; liquid cash $150,000.00; cash needed at the 1.00 target $850,000.00; most current liabilities allowed at the 1.00 target $150,000.00. With Target bars — liquid cash $150,000, current liabilities $250,000, Cash needed at the 0.50 target $0.00; at the 1.00 target $100,000.00; most current liabilities allowed at the 0.50 target $300,000.00; at the 1.00 target $150,000.00.

A note on the rounding: with cash of $123,456, cash equivalents of $54,321 and current liabilities of $200,000 the liquid cash is $177,777.00 and the unrounded ratio is 0.888885, which rounds half-up to 0.89 — the page prints the unrounded value so the rounding does not mislead you.

Output · formula · meaning

Who uses this

• The small-business owner checking the year-end balance sheet: they learn $120,000.00 of cash plus $30,000.00 of cash equivalents is $150,000.00 of liquid cash, a ratio of 0.60 — $100,000.00 short of full coverage — and they check the $220,000 reverse to see the smallest cash that reaches the 1.00 target.
• The supplier deciding whether to extend 30-day terms: they learn a ratio of 1.00 means exactly $1.00 of cash for every $1.00 of short-term bills — and they check the $150,000 reverse to see the largest liabilities that stay at or above the target.
• The owner whose ratio slipped to 0.48: they learn the business holds only $0.48 of cash for every $1.00 of short-term bills — and they check the $157,500 reverse to see the cash that would bring it to 0.75.
• The founder with a 1.50 ratio: they learn the business may be sitting on idle cash — and they check the $345,000 reverse to see the smallest cash that reaches 1.50.

Accuracy & limitations

The math is first-principles: the cash ratio is the cash plus the cash equivalents, divided by the current liabilities, rounded to two decimals half-up; the liquid cash is the cash plus the cash equivalents, rounded to cents half-up; the cash needed at the target is the target times the current liabilities minus the liquid cash, floored at zero; the most current liabilities allowed at the target are the liquid cash divided by the target. The reverses are judged on the UNROUNDED ratio: a neighbour one dollar short shows as the target when rounded to two decimals, but its unrounded ratio is below the target, so it does not meet the bar — the page prints the unrounded neighbour value in full. What the model cannot do is judge the business: cash equivalents are short-term investments that turn into cash within 90 days — Treasury bills, money-market funds, commercial paper — and a lender will check how much of the receivables really gets paid; the 0.50–1.00 range is the usual line, not a rule, and some industries run happily below it; and the ratio says nothing about the long-term debt, the cash flow, or whether the business is profitable. Use it to see whether the short-term bills are covered with cash alone — then read the rest of the balance sheet.

Frequently asked questions