A bad cash ratio is generally considered to be below 0.5 to 1.0, indicating a company may struggle to pay its immediate short-term debts using only cash and cash equivalents. A ratio lower than 1.0 means liabilities exceed available cash, signaling high liquidity risk, though some industries operate with lower ratios.
A good range for a healthy business would be between 1.0 -- 2.0. Once the ratio starts to get significantly higher than 2.0 it can indicate that the company is holding onto too much cash and this cash could be better served by being reinvested back into the business and earning a higher return.
Higher Cash Ratios indicate less credit and liquidity risk, but if a company's ratio is too high, it could indicate mismanagement or misallocated capital. As with the other Liquidity Ratios, context is king for understanding the Cash Ratio.
The Cash Ratio Calculation
A cash ratio of 1.00 or higher indicates good financial health. You have enough cash to meet your immediate liabilities without needing to sell assets. A ratio below 1.00 might point to potential liquidity issues and make it difficult to meet short-term obligations.
Availability of cash-on-hand to cover short-term debts
A cash ratio of 1 or more indicates that your company can cover all current liabilities without needing additional financing. A ratio below 1 suggests the business may need to dip into other assets or secure external funding to meet obligations.
A good price-to-cash-flow ratio is any number below 10. Lower ratios show that a stock is undervalued when compared to its cash flows, meaning there is a better value in the stock.
However, a debt ratio greater than one indicates a more risky financial future, while a lower debt ratio, generally around 0.5, implies your business is on good financial ground and has the potential for longevity.
The cash ratio, sometimes referred to as the cash asset ratio, is a liquidity metric that indicates a company's capacity to pay off short-term debt obligations with its cash and cash equivalents.
The cash-on-cash return for industrial real estate can vary greatly depending on the financing structure and the amount of leverage used. Generally, a good cash-on-cash return for industrial real estate is between 8-12%.
P/E ratio, or price-to-earnings ratio, is a quick way to see if a stock is undervalued or overvalued. Generally speaking, the lower the P/E ratio is, the better it is for both the business and potential investors. Analyzing P/E ratio is useful when comparing companies within the same sector.
While most companies aim for a short, low cash conversion cycle, a negative CCC is the goal for many businesses. This is especially true in retail and ecommerce, where rapid inventory turnover is common.
A bad debt ratio is generally considered to be one that indicates a level of debt that may jeopardize the financial stability of the company. Typically, a debt ratio is considered high or bad when it exceeds industry benchmarks. Generally, ratios above 0.6 are considered bad.
Thus, a “healthy” cash ratio is typically anything between 0.5 and 1.0, meaning the company could at least pay for half of its short-term debts using liquid resources. Generally speaking, the higher the ratio, the greater the company's ability to meet its current obligations.
Cash to Debt Ratio measures the financial strength of a company. It is calculated as a company's cash, cash equivalents, and marketable securities divide by its debt. Tesla's cash to debt ratio for the quarter that ended in Sep. 2025 was 3.02.
The "7% rule" in real estate typically refers to a quick screening tool where an investor checks if a rental property's gross annual rent is at least 7% of its purchase price, indicating a potentially solid income investment, though it's not a substitute for detailed analysis; however, other "7 rules" exist, like those focusing on agent performance (top 7% of agents do most business) or key investment principles (due diligence, diversification, market awareness, clear strategy) for long-term success.
There is no ideal figure, but a cash ratio is considered good if it is between 0.5 and 1. For example, a company with $200,000 in cash and cash equivalents, and $150,000 in liabilities, will have a 1.33 cash ratio.
A cash ratio below 1 means the company cannot fully cover its short-term obligations with cash alone. However, it doesn't always signal financial trouble; it could suggest efficient cash use.
Google (GOOGL) Cash Ratio : 0.99 (As of Sep. 2025)
The ratio of debt to assets has decreased from 0.49 in 2020 to 0.42 in 2022, with a slight increase to 0.44 by 2024.
Why is the debt ratio important? Generally, a good debt ratio for a business is around 1 to 1.5. However, the debt-to-equity ratio can vary significantly based on the business's growth stage and industry sector. For example, newer and expanding companies often utilise debt to drive growth.
A debt ratio of 0.6 (60%) or higher makes it more difficult to borrow money. Lenders often have debt ratio limits and won't extend further credit to firms that are overleveraged. Of course, there are other factors as well, such as creditworthiness, payment history, and professional relationships.