Cash Asset Ratio

Business, Legal & Accounting Glossary

Definition: Cash Asset Ratio



Full Definition of Cash Asset Ratio


The cash asset ratio – also known as the cash ratio – is a stringent test of a company’s liquidity. The cash asset ratio is computed as cash plus marketable securities, divided by current liabilities. Thus if cash is $50,000, marketable securities are $50,000, and current liabilities are $75,000, the cash asset ratio is (50,000 +50,000)/75,000, or 1.33. The cash asset ratio measures how much cash plus marketable securities (which are highly liquid and considered “near-cash”) the company has to cover its short-term obligations. The cash asset ratio can be distinguished from the quick or acid-test ratio, which includes accounts receivable in its numerator. The cash asset ratio is a much tougher measure of liquidity than the current ratio, which includes all of current assets, including inventories, in its numerator. Like all financial ratios, the ideal cash asset ratio will vary by industry, company size, and other factors. An excessive cash asset ratio should be discouraged, because the company should be using its extra cash to seek greater returns, not to generate a hefty cash asset ratio.


Cite Term


To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.

Page URL
https://payrollheaven.com/define/cash-asset-ratio/
Modern Language Association (MLA):
Cash Asset Ratio. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. December 03, 2020 https://payrollheaven.com/define/cash-asset-ratio/.
Chicago Manual of Style (CMS):
Cash Asset Ratio. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. https://payrollheaven.com/define/cash-asset-ratio/ (accessed: December 03, 2020).
American Psychological Association (APA):
Cash Asset Ratio. PayrollHeaven.com. Retrieved December 03, 2020, from PayrollHeaven.com website: https://payrollheaven.com/define/cash-asset-ratio/

Definition Sources


Definitions for Cash Asset Ratio are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 4th February, 2020 | 4 Views.