Advanced English Dialogue for Business – Cash ratio

Listen to a Business English Dialogue about Cash ratio

Nathan: Hey Paisley, have you heard about the cash ratio?

Paisley: No, I haven’t. What is it?

Nathan: The cash ratio is a financial metric that measures a company’s ability to cover its short-term liabilities with its cash and cash equivalents.

Paisley: Oh, I see. So, how is the cash ratio calculated?

Nathan: It’s calculated by dividing a company’s cash and cash equivalents by its current liabilities.

Paisley: That sounds useful. What does a high cash ratio indicate?

Nathan: A high cash ratio indicates that a company has a strong ability to meet its short-term obligations without relying on external financing.

Paisley: And what about a low cash ratio?

Nathan: A low cash ratio might suggest that a company could face difficulty meeting its short-term obligations, potentially indicating financial risk.

Paisley: That makes sense. How do investors use the cash ratio when evaluating a company?

Nathan: Investors use the cash ratio as one of the indicators of a company’s liquidity and financial health. A higher cash ratio generally indicates better financial stability.

Paisley: Are there any limitations to consider when using the cash ratio?

Nathan: Yes, the cash ratio doesn’t provide a complete picture of a company’s financial health since it only considers cash and cash equivalents and doesn’t account for other liquid assets or future cash flows.

Paisley: That’s good to know. Thanks for explaining the cash ratio, Nathan.

Nathan: You’re welcome, Paisley. It’s essential to consider multiple financial metrics when analyzing a company’s financial position.