Liquidity Control - Cash Ratio, Quick Ratio & Current Ratio

How is your liquidity? Use our article to calculate the three most important liquidity ratios for your company.

First Degree Liquidity (Cash Ratio)

The Cash Ratio is calculated from the ratio of liquid assets (cash on hand and bank balances) to short-term liabilities (all liabilities with a residual maturity of less than one year). It thus indicates to what extent a company can cover its short-term payment obligations with liquid assets. The Cash Ratio does not have to be 100%, as incoming payments from debtors (see liquidity grade 2) and the sale of inventories (see liquidity grade 3) can also be used to cover payment obligations. The target value is therefore between 10 and 30%. Calculation:

Second Degree Liquidity (Quick Ratio)

In the Quick Ratio, short-term receivables are added to the liquid funds and this sum is then set in relation to the short-term liabilities. The target value is between 100 and 120%. A value below 100% could indicate, among other things, an excessively high inventory level due to too low sales. Calculation:

Third Degree Liquidity (Current Ratio)

In the Current Ratio, liquid assets and short-term receivables are supplemented by inventories (Current Assets) and the sum is then put back in relation to the short-term liabilities. The target value is at least 120%. A value below this can point to sales problems. On the other hand, a value significantly above 120% can be an indication that there are too many inventories in the warehouse tying up capital. Calculation:

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