DEFINITION of 'Trading Below Cash'

When a company's total share value is less than its cash minus debts. Trading below cash occurs when the market capitalization is less than the amount of actual cash a company has on hand. Trading below cash often occurs when growth prospects are poor.

BREAKING DOWN 'Trading Below Cash'

Trading below cash may or may not be viewed as a negative depending on the company outlook. If a company is in the process of a turnaround, the stock may be trading below cash with the potential to succeed in the future. The opposite may also be true, if a company is trading at below cash with weak growth prospects, it may be a sign the company is in trouble.


There's an old saying, "even a palace isn't worth much if it's on fire," meaning that a company's cash reserves aren't nearly as important as how fast the money is being spent (the burn rate).

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RELATED FAQS
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  2. How can you use a cash flow statement to make a budget?

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  3. Where do companies keep their cash?

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  4. What is the relationship between the cash ratio and liquidity?

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  5. How do I determine cash flow investing activities for a publicly traded company?

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