As mentioned yesterday, since the amount of cash is related to the life and death of a company, isn’t the more the better?

The answer is also counter-intuitive.

In finance, there is an indicator to measure the level of cash holdings called the cash ratio.

Cash ratio = (cash short-term investment) / current liabilities, cash is the cash held by the company, short-term investment refers to bank financial products that will mature within one year or can be redeemed at any time; current liabilities, It refers to the debt that the company has to repay within one year. For example: payments to suppliers, employee wages, bank loans due within one year.

For Chinese listed companies, the cash ratio is generally around 20. That is to say, if the debt you have to repay in the short term (usually one year) is 100 yuan, then your corporate cash reserve only needs 20 yuan. Yuan.

Too much is not good.

Why?

There is a data, among the global listed companies, who has the most cash? The answer is Apple.

At the end of 2017, Apple held US$285.1 billion in cash, which was more than Germany’s foreign exchange reserves.

It is said that Apple has received a lot of criticism because it has too much cash.

Some investors have publicly criticized Apple CEO Cook: "It would be a crime to have more than $200 billion in cash and not use it."

So, if your business has a lot of cash, what signal does it usually send to the outside world?

First of all, knowledgeable people will think that your company's financial capital management level is too low, or it is not good at making investments, and will only get very low financial returns by putting it in the bank.

Secondly, the outside world will think that the financing cost of this company is high. Financing lines for small businesses are generally very low, or interest costs are high, and banks are generally unwilling to take risks by lending money to small companies.

In terms of financing, the same bank also depends on the customer. The interest costs of small businesses are usually twice or even more than those of large businesses.

Therefore, in order to survive, small businesses can only retain relatively high cash holdings.

Third, if you have a lot of cash, it is easy to spend money indiscriminately. Just like if you have a lot of money in your wallet, you will not be able to help but spend more money.

So you see, the more cash holdings, the better.

Of course, you may ask, the debt to be repaid in the short term is 100. If I only have 20 yuan in cash, where will the 80 yuan come from?

In fact, your company not only has cash, but also inventory and accounts receivable. These are assets that can be realized in succession. To put it bluntly, they are obtained from customers.

As long as your current assets are greater than your current liabilities as a whole, your business is safe.

So what kind of company will be a cash cow?

Also, what kind of business model does not have to worry about cash?

Let’s talk tomorrow!