The cash to current assets ratio is a liquidity ratio that measures how well a company can pay off its current liabilities with its most liquid assets, such as cash and marketable securities. It is similar to the current ratio, which compares all current assets to current liabilities, and the quick ratio, which compares only the quick assets (cash, marketable securities, and accounts receivable) to current liabilities. The cash to current assets ratio is more conservative than the other two ratios, as it only considers the assets that can be easily converted to cash in a short period of time.
The formula for the cash to current assets ratio is:
To calculate the cash to current assets ratio in Excel, you need to have the values of cash, marketable securities, and current assets in separate cells. For example, if you have cash in cell B2, marketable securities in cell B3, and current assets in cell B4, you can enter the following formula in any other cell:
=B2+B3/B4
This will give you the cash to current assets ratio as a decimal number. You can format the cell to show the ratio as a percentage by clicking on the Home tab, then the Number group, and then the Percentage button.
To explain the cash to current assets ratio, let’s use a hypothetical scenario. Suppose you are analyzing the financial statements of ABC Company, which has the following values for the year 2023:
| Item | Value |
|---|---|
| Cash | $50,000 |
| Marketable Securities | $100,000 |
| Accounts Receivable | $150,000 |
| Inventory | $200,000 |
| Other Current Assets | $50,000 |
| Current Assets | $550,000 |
| Accounts Payable | $100,000 |
| Short-Term Debt | $150,000 |
| Other Current Liabilities | $50,000 |
| Current Liabilities | $300,000 |
Using the formula above, you can calculate the cash to current assets ratio of ABC Company as follows:
This means that ABC Company has $0.27 of cash and marketable securities for every $1 of current assets. This ratio indicates that ABC Company has a relatively low liquidity, as it may not be able to pay off its current liabilities with its most liquid assets. A higher ratio would imply a better liquidity position, as it would mean that the company has more cash and marketable securities relative to its current assets.
However, the cash to current assets ratio is not the only measure of liquidity. It may not capture the full picture of a company’s ability to meet its short-term obligations, as it ignores other current assets that may also be liquid, such as accounts receivable and inventory. Moreover, the cash to current assets ratio may vary across different industries and business models, depending on the nature and turnover of their assets and liabilities. Therefore, it is important to compare the cash to current assets ratio of a company with its peers and industry averages, as well as with other liquidity ratios, such as the current ratio and the quick ratio.
Other approaches to calculate the cash to current assets ratio in Excel are:
- Using the SUM function to add the cash and marketable securities, such as
=SUM(B2:B3)/B4 - Using the named ranges to refer to the cells, such as
=Cash+Marketable_Securities/Current_Assets - Using the cell references in a table, such as
=[@Cash]+[@Marketable_Securities]/[@Current_Assets]
