What is the Texas Ratio?

The Texas Ratio is a financial formula first developed by Gerald Cassidy and other analysts at RDC Capital Markets to measure how much stress a bank has and how likely it is that it will be around much longer.

The formula looks like this

Loans + Non-Performing Assets / Cash on Hand + Reserve

If the number is greater than 1 or 100% the bank might have a serious problem in the near future.

An example of this ratio at work was Indymac Bank which had a ratio of 1.16 or 116% before the bank collapsed.

It is important to realize that a high ratio does not mean that the stock will go out of business, but it is a good possible warning sign.

Return From Texas Ratio to Fundamental Analysis