The cash ratio is another calculation used to measure liquidity and is more restrictive than the current and quick ratios with a more limited definition of assets used for the numerator of the calculation.
Working with your cash ratio
Your cash ratio is a measure of your immediate liquidity. It gives you a picture of what would happen if you had to pay all your current liabilities immediately. While it is unlikely that you will have to pay all your current liabilities and not have future sales or collections of accounts receivable, this calculation is helpful to understand a "worst case" scenario. The smaller the ratio, the more dire the consequences would be.
By monitoring changes in your cash ratio over time, you can better understand the financial dynamics of your business and run it more effectively. Here is a worksheet you can use to track changes in this and other important measures.