Cash Ratio formula
\[ \dfrac{\text{Cash and cash equivalents} + \text{Short-term investments}}{\text{Current liabilities}} \]
Terms
- Cash and cash equivalents, closing balance: Cash on hand and in bank accounts, plus deposits that can be withdrawn at short notice without loss of value.
- Current liabilities, closing balance: Obligations due within a year: trade payables, short-term borrowings, tax and payroll liabilities, accruals.
- Short-term investments, closing balance: Marketable securities and deposits held for less than a year that are not cash equivalents.
Result
Cash Ratio is a ratio. Higher is better.
Target
There is no general target. Lenders look at it in a downturn; in normal times a low value is common and not alarming on its own.
Cash Ratio pitfalls
- A single closing balance can be far from the typical level within the month. For cash, the intra-month low matters more than the month-end figure.
Cash Ratio in Business Central
Cash and cash equivalents (closing balance)
- Category Cash (3) and every category below it
5 posting accounts in total.
The full account list is on the Cash and cash equivalents page.
Current liabilities (closing balance)
- Category Current Liabilities (11) and every category below it
- Category Payroll Liabilities (12) and every category below it
- Plus 8 accounts assigned directly: 23850 Employees Payable, 26100 Accrued wages/salaries, 26200 Accrued Holiday pay, 26300 Accrued Pension costs, 26400 Accrued Interest Expense, 26500 Deferred Income, 26600 Accrued Contractual costs, 26700 Other Accrued Expenses and Deferred Income
29 posting accounts in total.
The full account list is on the Current liabilities page.
Short-term investments (closing balance)
- Plus 5 accounts assigned directly: 17100 Bonds, 17120 Decreases during the Year, 17200 Convertible debt instruments, 17300 Other short-term Investments, 17400 Write-down of Short-term investments
5 posting accounts in total.
The full account list is on the Short-term investments page.
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