# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Cash

Written By
Paul Tracy
Updated October 1, 2020

What is Cash?

Cash is an asset that is in currency form.

How Does Cash Work?

Although there is some leeway for judgment in particular situations, common examples of cash at the corporate level typically include bank accounts and money market funds. Marketable securities and Treasury bills are easily converted into cash and are thus usually called "cash equivalents." The Financial Accounting Standards Board requires companies to establish policies concerning which types of short-term, highly liquid investments are treated as cash equivalents.

The balance sheet shows the amount of cash at a given point in time; the statement of cash flows explains the change in cash over time.

Why Does Cash Matter?

The amount of cash a company holds is very important and has implications for the company's overall operating strategy. For instance, companies with high amounts of cash are better able to get through hard times when sales are low or expenses are particularly high. However, companies with a lot of cash on hand are often takeover targets because their excess cash essentially helps buyers finance their purchase.

High cash reserves also could indicate that management has not figured out how to best deploy the cash, but for capital-intensive companies, high cash reserves could signal that the company is "saving up" to make some significant purchases.

It is important to note that there is an opportunity cost to holding cash; that cost is the return on equity that company could have earned by investing the cash in a new product or expanding business.

Many theories exist about how much cash certain kinds of companies should hold, and the current ratio and the quick ratio help investors and analysts compare company cash levels in relation to certain expenses.

Ask an Expert about Cash
At InvestingAnswers, all of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Cash.
Be the first to ask a question

If you have a question about Cash, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers.

If you have a question about Cash, then please ask Paul.

Ask a question Read more from Paul

Read this next

Paul Tracy - profile
Ask an Expert about Cash

By submitting this form you agree with our Privacy Policy

Share
close
Don't Know a Financial Term?
Search our library of 4,000+ terms