CashAndCashEquivalentsAtCarryingValueCashCashEquivalentsRestrictedCashAndRestrictedCashEquivalentsCash and cash equivalents is the money a company holds in currency and bank deposits it can withdraw on demand, plus short-term, highly liquid investments so close to maturity that their value is practically certain. It is the first line of current assets on most balance sheets and the most liquid resource a company has.
Cash equivalents typically include Treasury bills, commercial paper, and money market funds. As a general rule only investments with an original maturity of three months or less, measured from the date the company bought them, qualify. Longer-dated securities are reported as short-term or long-term investments instead.
The definition of a cash equivalent comes from ASC 230, the cash flow statement standard. An investment qualifies if it can readily be converted into a known amount of cash and is near enough to maturity that changes in interest rates pose little risk to its value. What matters is the maturity when the company acquired it: a three-year note bought with three months left qualifies, but one held for years does not become a cash equivalent as it nears maturity. Companies must disclose their policy for deciding what they treat as a cash equivalent.
Regulation S-X Rule 5-02.1 requires cash that is restricted as to withdrawal or use to be disclosed separately, with the nature of the restriction described in a note, and asks for disclosure of compensating-balance arrangements with lenders. In XBRL filings the balance-sheet line is tagged CashAndCashEquivalentsAtCarryingValue. Since the cash flow statement reconciles a total that includes restricted cash, that broader figure is tagged separately as CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalents and can differ from the balance-sheet line.
Analysts treat cash as the ultimate cushion against losses and debt maturities. It is subtracted from debt to calculate net debt and enterprise value, and it is the numerator of the cash ratio. Not all of it may be freely available, though. Cash held by foreign subsidiaries can face repatriation costs, cash held by regulated units may be restricted, and some companies keep a minimum balance to run day-to-day operations. Many companies also hold large short-term investment portfolios that sit outside this line, so look at the two together.
A: Short-term, highly liquid investments that can be converted to a known amount of cash with little risk of a change in value, generally those with an original maturity of three months or less. Common examples are Treasury bills, commercial paper, and money market funds.
A: Usually not on the balance sheet, where restricted amounts are shown separately. The cash flow statement, however, reconciles a total that includes restricted cash, so the two figures can differ.
A: The balance is the amount on hand at one date. The net change in cash is the difference between two balances, explained on the cash flow statement by operating, investing, and financing activities.
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