Q: Does the net change in cash include restricted cash?
A: Yes, for filings under current US GAAP. Since ASU 2016-18, restricted cash and restricted cash equivalents are included in the beginning and ending balances and in the net change.
Net Change in Cash
Net Changes in Cash
Metadata
- Category
- Cash Flow
- Units
- Currency
- Formula
- Cash from Operating Activities + Cash from Investing Activities + Cash from Financing Activities + Effect of Exchange Rates on Cash
- US-GAAP elements
CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalentsPeriodIncreaseDecreaseIncludingExchangeRateEffectCashAndCashEquivalentsPeriodIncreaseDecrease- Reference
- ASC 230, Statement of Cash Flows
- Source
- Reported in SEC EDGAR filings (US-GAAP XBRL taxonomy)
Definition
Net change in cash is the total increase or decrease in a company's cash, cash equivalents, and restricted cash over a period. It equals the sum of cash from operating, investing, and financing activities plus the effect of exchange rate changes on cash held in foreign currencies, and it links the beginning and ending cash balances shown at the bottom of the cash flow statement.
It answers the simplest question the statement is built to answer: how much more or less cash the company had at the end of the period than at the start.
Details
ASC 230 requires the cash flow statement to explain the change during the period in cash and cash equivalents, and since ASU 2016-18 that total also includes restricted cash and restricted cash equivalents. The XBRL element that reflects current practice is CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalentsPeriodIncreaseDecreaseIncludingExchangeRateEffect. Older filings, and some companies with no restricted cash, use CashAndCashEquivalentsPeriodIncreaseDecrease. Because restricted cash is included, the ending balance on the cash flow statement can be larger than the cash and cash equivalents line on the balance sheet; companies must reconcile the two.
Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and close enough to maturity, generally three months or less when purchased, that interest rate changes pose little risk to their value. Each company discloses its policy for which instruments it treats as cash equivalents. Moving money from cash equivalents into short-term investments with longer maturities reduces this figure even though the company is no wealthier, because the purchase is reported as an investing outflow.
That is why analysts rarely treat the net change in cash as a performance measure. A company can report a large decline in cash while generating strong operating cash flow, simply because it paid for an acquisition, repurchased shares, or bought marketable securities. The more useful information sits in the three sections that make up the total.
FAQ
Q: Why doesn't net change in cash match the balance sheet?
A: The cash flow statement includes restricted cash, which the balance sheet often reports in other lines. Companies provide a reconciliation, usually in the notes or at the foot of the statement.
Q: Is a decrease in cash a bad sign?
A: Not by itself. Cash can fall because a company invested in securities, made an acquisition, or returned money to shareholders. Look at operating cash flow to judge the underlying business.
Related Terms
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