The ratio calculated as cash plus cash equivalents divided by current liabilities is the cash ratio.
It is the most conservative of the common short-term liquidity ratios because its numerator is limited to immediately available funds and near-cash investments. A cash ratio of 0.50 means the company holds enough qualifying cash and cash equivalents to cover half of its current liabilities without collecting receivables or selling inventory.
Cash equivalents are generally short-term, highly liquid investments with insignificant risk of value changes; accounting practice commonly uses a maturity of 90 days or less from acquisition. Depending on the reporting convention, analysts may also include certain marketable securities, so definitions should be checked before comparing companies.
The quick ratio is broader because it can include receivables and other liquid assets. The current ratio includes all current assets, including inventory. The defensive interval ratio instead estimates how long liquid resources can fund daily operating costs. A high cash ratio improves immediate resilience, but excess idle cash can also indicate unused capital.