Listen to a Business English Dialogue About Cash asset ratio
Eden: Hi Isabella, do you know what the cash asset ratio is?
Isabella: No, I don’t. What does it measure?
Eden: It’s a financial metric that compares a company’s cash and cash equivalents to its total assets, giving an indication of how much of its assets are in cash.
Isabella: Oh, I see. So, it tells us how liquid a company’s assets are?
Eden: Exactly! A higher cash asset ratio means the company has more liquidity, which can be helpful for covering short-term obligations or unexpected expenses.
Isabella: Are there any drawbacks to having a high cash asset ratio?
Eden: Well, while having a high cash asset ratio provides liquidity, it also means the company may not be investing its resources optimally to generate returns.
Isabella: That makes sense. So, it’s about finding the right balance between liquidity and investment?
Eden: Precisely! It’s essential for companies to strike a balance that ensures they have enough cash to meet their short-term needs while also investing in opportunities for growth.
Isabella: How do investors use the cash asset ratio when evaluating a company?
Eden: Investors might use it to assess a company’s financial health and its ability to weather economic downturns or unexpected events.
Isabella: Thanks for explaining, Eden. The cash asset ratio seems like a useful tool for analyzing a company’s financial position.
Eden: You’re welcome, Isabella. It’s an important metric that provides insights into a company’s liquidity and financial stability.