is it better to have a high or low cash ratio 
it s often better to have a high cash ratio a company has more cash on hand lower short term liabilities or a combination of the two it also means a company will have a greater ability to pay off current debts as they come due a company s cash ratio can be considered too high a company may be inefficient in managing cash and leveraging low credit terms it may be advantageous for a company to reduce its cash ratio in these cases the bottom linea company s cash ratio is calculated by dividing its cash and cash equivalents by its short term liabilities a company can strive to improve its cash ratio by having more cash on hand in case of short term liquidation or demand for payments this includes turning over inventory more quickly holding less inventory or not prepaying expenses alternatively a company can reduce its short term liabilities the company can begin paying expenses with cash if credit terms are no longer favorable the company can also evaluate spending and strive to reduce its overall expenses thereby reducing payment obligations 