cash ratio: meaning, definition, pronunciation and examples
Low frequencyFormal/Technical
Quick answer
What does “cash ratio” mean?
A financial metric that measures a company's ability to cover its current liabilities using only its cash and cash equivalents.
Audio
Pronunciation
Definition
Meaning and Definition
A financial metric that measures a company's ability to cover its current liabilities using only its cash and cash equivalents.
A strict, immediate measure of short-term financial liquidity and solvency, indicating the proportion of readily available cash resources against short-term debts. In banking, it may also refer to a regulatory requirement specifying the minimum percentage of customer deposits a bank must hold as cash.
Dialectal Variation
British vs American Usage
Differences
No significant lexical differences. The concept and term are identical in both financial contexts.
Connotations
Neutral technical term in both varieties.
Frequency
Equally low frequency outside of specialized financial and business reporting in both regions.
Grammar
How to Use “cash ratio” in a Sentence
The cash ratio of [ENTITY] is [NUMBER].[ENTITY] has a cash ratio of [NUMBER].To calculate the cash ratio, divide [CASH] by [LIABILITIES].Vocabulary
Collocations
Examples
Examples of “cash ratio” in a Sentence
verb
British English
- The regulator requires banks to cash-ratio their holdings quarterly.
- We need to cash ratio our assets against potential claims.
American English
- Analysts will cash ratio the company's liquidity next week.
- The firm failed to adequately cash ratio its reserves.
adverb
British English
- [Not standardly used as an adverb]
American English
- [Not standardly used as an adverb]
adjective
British English
- The cash-ratio requirement was met comfortably.
- They performed a cash-ratio analysis.
American English
- The cash ratio calculation is straightforward.
- We reviewed the cash ratio requirements.
Usage
Meaning in Context
Business
Used in financial analysis, annual reports, and credit assessments to evaluate a firm's immediate ability to pay debts.
Academic
Found in finance, accounting, and economics textbooks and journals discussing corporate liquidity or banking regulations.
Everyday
Virtually never used in casual conversation.
Technical
A precise term in corporate finance, investment analysis, and banking supervision.
Vocabulary
Synonyms of “cash ratio”
Strong
Neutral
Weak
Vocabulary
Antonyms of “cash ratio”
Watch out
Common Mistakes When Using “cash ratio”
- Using it interchangeably with 'current ratio' or 'quick ratio'. The cash ratio is more restrictive.
- Omitting 'cash equivalents' (like treasury bills) when calculating it, using just physical cash.
- Pronouncing 'ratio' incorrectly, e.g., /ˈræt.ioʊ/ instead of /ˈreɪ.ʃoʊ/.
FAQ
Frequently Asked Questions
No. The quick ratio (or acid-test ratio) includes cash, cash equivalents, and accounts receivable. The cash ratio is stricter, using only cash and cash equivalents.
There is no universal standard, as it varies by industry. A ratio above 0.5 is often considered reasonable, but a ratio that is too high might indicate idle cash that isn't being invested for growth.
Primarily financial analysts, investors, creditors, and regulatory bodies to assess the immediate short-term financial risk of a company or bank.
Yes. An excessively high cash ratio suggests the company is not using its cash efficiently to invest in operations, pay dividends, or reduce debt, potentially leading to lower returns for shareholders.
A financial metric that measures a company's ability to cover its current liabilities using only its cash and cash equivalents.
Cash ratio is usually formal/technical in register.
Cash ratio: in British English it is pronounced /ˈkæʃ ˌreɪ.ʃi.əʊ/, and in American English it is pronounced /ˈkæʃ ˌreɪ.ʃoʊ/. Tap the audio buttons above to hear it.
Phrases
Idioms & Phrases
- “[Not applicable for this technical term]”
Learning
Memory Aids
Mnemonic
Think of CASH as King for immediate bills. The CASH RATIO asks: 'Is the king's treasure (cash) enough to pay all the messengers demanding payment right now (current liabilities)?'
Conceptual Metaphor
FINANCIAL HEALTH IS PHYSICAL LIQUIDITY (The most liquid asset, cash, is the purest measure of immediate financial 'fluidity' to meet obligations).
Practice
Quiz
What does a cash ratio of 0.5 indicate?