The former Blackburn Rovers striker took the armband following Kevin Nolan's £4 million move to Newcastle United, and Cahill is delighted with the way Davies has taken to the role.
The forward has become a pivotal part of the Bolton side in recent years and helped the Trotters achieve a 2-1 over West Ham United yesterday, scoring the winning goal.
Cahill is proud to play with Davies and believes the 31-year-old leads by example.
Speaking to Sky Sports, the defender said, "He has been outstanding and taken to the captaincy brilliantly as well.
"All the players back him 100%, because he leads by example. If everyone followed his effort and determination we would be in the top half of the table.
"Kevin's got another goal and he is just getting better. He will keep improving until the end of the season.
"His confidence is high and he must believe he is going to score in every game, which is brilliant."
Davies has been at the club since 2003, making the move to the Reebok Stadium from Southampton. He is just one game shy of making his 200th Premier League appearance for the club and has scored 44 league goals in that time.
Nick Turner, Goal.com