Cash to debt

Balance sheet

Cash and equivalents relative to long-term debt.

Formula

Cash/debt = cash & equivalents ÷ long-term debt

Why it matters

Gross debt overstates risk when the company holds a large cash pile against it. A ratio above 1 means the company could retire every dollar of long-term debt from cash on hand today — its net debt is zero or negative. That position converts a downturn from an existential threat into a buying opportunity: net-cash companies can repurchase shares, make acquisitions, and keep investing while leveraged competitors retrench.

What good looks like

Above 1 (more cash than debt) earns 5 points in our quality score and effectively neutralizes leverage concerns. 0.5–1 is comfortable. Below 0.25 means the debt is real and must be serviced from future cash flow — read it together with debt/FCF.

Caveats

Cash held overseas or earmarked for near-term obligations is less available than it appears. Some companies keep large cash balances while also carrying cheap long-dated debt on purpose — that is a financing choice, not distress. The ratio says nothing about debt maturity: a wall of debt due next year matters far more than the same amount due in 2040.