1. What is the Operating Cash Ratio?

The Operating Cash Ratio (OCR) is a liquidity ratio that measures a company's ability to pay off its current liabilities using only its cash and cash equivalents. It provides a stringent assessment of a company's immediate financial health.

2. How Does the Calculator Work?

The calculator uses the Operating Cash Ratio formula:

Where:

• \( Cash \) — Total cash on hand and in banks
• \( Cash\ Equivalents \) — Highly liquid short-term investments
• \( Current\ Liabilities \) — Debts and obligations due within one year

Explanation: This ratio indicates how many times a company can cover its current liabilities using only its most liquid assets.

3. Importance of Operating Cash Ratio

Details: The OCR is crucial for assessing a company's immediate liquidity position. It helps investors, creditors, and management understand the company's ability to meet short-term obligations without relying on inventory sales or accounts receivable collection.

4. Using the Calculator

Tips: Enter cash and cash equivalents in USD, current liabilities in USD. All values must be valid (cash ≥ 0, current liabilities > 0).

5. Frequently Asked Questions (FAQ)

Q1: What is considered a good Operating Cash Ratio?
A: Generally, a ratio above 0.5 is considered healthy, but this varies by industry. Higher ratios indicate stronger liquidity positions.

Q2: How does OCR differ from Current Ratio?
A: OCR only considers cash and cash equivalents, while Current Ratio includes all current assets (inventory, accounts receivable, etc.).

Q3: What are cash equivalents?
A: Cash equivalents include treasury bills, money market funds, commercial paper, and other highly liquid investments with maturities of three months or less.

Q4: Can OCR be too high?
A: Yes, extremely high ratios may indicate inefficient use of cash that could be invested in growth opportunities.

Q5: How often should OCR be calculated?
A: It should be monitored quarterly along with other financial ratios to track liquidity trends over time.