what is a good cash ratio

The cash ratio is a financial metric that measures a companys ability to pay off its short-term debts with its cash and cash equivalents. A cash ratio equal to or greater than 1 indicates that a company has enough cash and cash equivalents to entirely pay off all short-term debts. A ratio above 1 is generally favored, while a ratio under 0.5 is considered risky as the entity has twice as much short-term debt compared to cash. However, there is no ideal figure, and the cash ratio will vary between industries as some sectors rely more heavily on short-term debt and financing. Creditors prefer a high cash ratio, as it indicates that a company can easily pay off its debt. A cash ratio between 0.5 and 1 is generally considered good.