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Cash ratio vs current ratio

Published August 17, 2026

The cash ratio is cash over current liabilities. On $200,000 of cash and $400,000 of bills it is 0.50. The current ratio on a wholesaler sheet is 1.50 from $600,000 of current assets against the same $400,000 bills figure. Cash $200,000 is not that $600,000.

	Cash ratio	Current ratio
Formula	Cash / current liabilities.	Current assets / current liabilities.
Teaching sheet	0.50, from $200,000 of cash over $400,000 of bills.	1.50, from a wholesaler with $600,000 of current assets against $400,000 of bills.
What stays in the numerator	Cash only. Receivables and inventory are both out.	Every current asset, including inventory. The $160,000 of stock stays in.
Shared denominator	$400,000 of current liabilities on the cash sheets.	The same $400,000 bills figure on the wholesaler. Cash $200,000 is not current assets $600,000.
A thinner cash line	$80,000 over the same $400,000 is 0.20. Still the cash-only sheet.	The wholesaler's 1.50 already kept inventory in. Do not mash the two firms.
What it is not	A current ratio, a quick ratio, or a cash forecast.	A claim that cash is the only asset that counts. It is a claim that everything current counts.

Cash alone is not current assets

The cash ratio asks whether cash covers the bills that fall due within a year:

$\text{Cash ratio} = \frac{\text{Cash}}{\text{Current liabilities}}$

On $200,000 of cash against $400,000 of current liabilities, the ratio is 0.50. Half the next year of bills is covered by cash on that reading.

The current ratio asks the same coverage question with every current asset left in:

$\text{Current ratio} = \frac{\text{Current assets}}{\text{Current liabilities}}$

That formula lives on a different teaching sheet. A wholesaler holds $600,000 of current assets, of which $160,000 is inventory, against $400,000 of current liabilities. The current ratio is 1.50. The quick ratio on that sheet is 1.10 after the stock comes out.

They share a $400,000 bills denominator. Cash $200,000 is not the same as current assets $600,000. Do not paste the cash line onto the wholesaler and call it one firm.

How the cash ratio works owns the 0.50. How the current ratio works owns the 1.50. How the quick ratio works owns the 1.10.

The 0.20 cash sheet is still not the wholesaler

Cut cash to $80,000 against the same $400,000 of bills and the cash ratio is 0.20. Four fifths of the bills would have to wait on collections or stock. That is still the cash-only sheet. It is not the wholesaler.

The wholesaler's 1.50 already kept inventory in. Its gross profit is $700,000 on $2,000,000 of sales, a 35 percent margin, which is a different claim from coverage. Cost of goods on that sheet is $1,300,000.

The cash ratio calculator is the one division. The business ratios calculator prints current, quick and margin on the wholesaler sheet. Cash ratio against quick ratio is the last strip-out. Current against quick is the first. Liquidity is the wider idea. Working capital is the dollar gap behind the current ratio. This is educational material, not financial advice.

Worked examples

0.50 on \$200,000 of cash

Cash is $200,000. Current liabilities are $400,000. What is the cash ratio?

Cash ratio is cash over current liabilities: $200000 / 400000 = 0.50$ .
Half the $400,000 of bills is covered by the $200,000 of cash.

The cash ratio is 0.50. Cash is $200,000. Current liabilities are $400,000.

A wholesaler, current ratio 1.50

A distributor holds $600,000 of current assets, of which $160,000 is inventory, against $400,000 of current liabilities. Over the year it sold $2,000,000 of goods that cost $1,300,000 to buy. What do the ratios read?

Current ratio is current assets over current liabilities: $600{,}000 / 400{,}000 = 1.50$ .
Take the inventory out to get the quick assets: $600{,}000 - 160{,}000 = 440{,}000$ .
Quick ratio divides that by the same liabilities: $440{,}000 / 400{,}000 = 1.10$ .
Gross profit is revenue minus the cost of goods sold: $2,000,000 minus $1,300,000 is $700,000.
Gross margin is gross profit over revenue: $700{,}000 / 2{,}000{,}000 = 0.35$ , which is 35 percent.

The current ratio is 1.50 and the quick ratio is 1.10. Gross margin is 35 percent, meaning $700,000 of the $2,000,000 in sales is left after the cost of the goods. This wholesaler is not the cash-ratio firm.

0.20 on \$80,000 of cash

Cash is $80,000. Current liabilities are $400,000. What is the cash ratio?

Cash ratio: $80000 / 400000 = 0.20$ .
The $80,000 of cash covers one fifth of the $400,000 of bills.

The cash ratio is 0.20. Cash is $80,000. Current liabilities are $400,000.

Common questions

Are the 0.50 and the 1.50 the same firm?

No. The 0.50 is cash $200,000 over bills $400,000. The 1.50 is a wholesaler with $600,000 of current assets against the same $400,000 bills figure. Cash $200,000 is not current assets $600,000.

Why take receivables and inventory out of the cash ratio?

Because a receivable still has to be collected and stock still has to sell. The current ratio keeps both in. The cash ratio keeps only cash. On the first sheet the $400,000 of bills is covered only by $200,000 of cash.

Is 0.50 a failing cash ratio?

It is a teaching-sheet reading: $200,000 against $400,000. Many firms run below 1 because customers pay before suppliers are paid. The third sheet's 0.20 is $80,000 against the same bills, a thinner cash line, not a grade.

Keep reading

This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.