 The cash ratio measures a company's ability to pay current liabilities from cash and cash equivalents only. The cash ratio is a measure of liquidity. The formula is cash plus cash equivalents divided by current liabilities. Note that when the cash ratio is greater than one, this is often considered an inefficient use of cash. Companies should look for uses for the excess cash, or pay it out to shareholders in the form of dividends. Here is the current asset and liability section of a sample company's balance sheet. We'll use the highlighted current assets and liabilities to determine the cash ratio. In 2015, cash divided by current liabilities gives us a cash ratio of 0.31. For 2016, cash divided by current liabilities gives us a cash ratio of 0.76, which is strong, but the company might look to put that cash to work in the form of an investment.