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WIKI ANALYSIS| This article is part of WikiProject Definitions. Consider editing to improve it. View articles referencing this definition. |
Cash and cash equivalents are assets in actual cash or quickly convertible to cash
Cash and cash equivalents are the most liquid current assets found on a company's balance sheet. They are assets that are easily and quickly converted into cash or are, in fact, cash. It should be noted that while functionally "cash equivalents" are eponymously equivalent to cash, this is not literally true; the Financial Accounting Standards Board (FASB) defines "cash equivalents" as highly liquid securities with maturity of 3 months or less. As such, a three-month treasury bill would be considered a cash equivalent.
A company's ability to generate cash a keep cash and cash equivalents is a primary indicator of its health. Companies with disproportionately high net assets relative to its cash and cash equivalents is generally an indication of non-liquidity.
For individual investors and companies, cash and cash equivalents are generally considered to be a safe investment with low risk and low returns. That is to say, maintaining significant assets in cash and cash equivalents (rather than investing them in securities or back into the company) is a low-risk investment strategy.
Examples
Examples of cash and cash equivalents are:
- Cash in a bank account
- Physical cash on hand
- Certain Treasury Bills
Cash and Cash Equivalents data on Wikinvest
Wikinvest calculates Cash and Cash Equivalents by including cash at hand, restricted cash and gold bullions (except in the case of gold producing companies). Short-term investments such as commercial paper, T-bills or time deposits are included under the metric short-term investments.
The result may be different from other finance web portals (such as Yahoo! Finance) due to a different treatment of short-term investments.
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