Trading Below Cash

AAA

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.

INVESTOPEDIA EXPLAINS '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).

RELATED TERMS
  1. Return On Investment - ROI

    A performance measure used to evaluate the efficiency of an investment ...
  2. Cash Reserves

    In finance, cash reserves primarily refers to two things. One ...
  3. Net Cash

    A company's total cash minus total liabilities when discussing ...
  4. Burn Rate

    The rate at which a new company uses up its venture capital to ...
  5. Return On Assets - ROA

    An indicator of how profitable a company is relative to its total ...
  6. Large Cap - Big Cap

    A term used by the investment community to refer to companies ...
RELATED FAQS
  1. What is the average price-to-earnings ratio in the Internet sector?

    The average price to earnings varies significantly within the Internet sector but, as of 2015, the current industry average ... Read Full Answer >>
  2. What is the difference between technical analysis and fundamental analysis?

    Fundamental analysis and technical analysis are distinct methods used to research and evaluate securities. Fundamental analysis ... Read Full Answer >>
  3. Why is the price to sales ratio commonly used for comparing companies in the Internet ...

    The price to sales (P/S) ratio is used for comparing companies in the Internet sector because it is the most meaningful measure ... Read Full Answer >>
  4. What does the Dividend Discount Model (DDM) show an investor about a company?

    The dividend discount model, or DDM, is not designed to be used in forecasting any possible capital gains from increases ... Read Full Answer >>
  5. If a company has a high debt to capital ratio, what else should I look at before ...

    A variety of equity valuation metrics can be utilized to evaluate a company along with the debt to capital ratio to get a ... Read Full Answer >>
  6. How can a firm bring down its operating leverage?

    A company with a lower percentage of fixed costs and a higher percentage of variable costs uses less operating leverage. ... Read Full Answer >>
Related Articles
  1. Markets

    Burn Rate Key Factor In Company's Sustainability

    Be careful around companies with high cash burn rates. These investments can turn to ashes.
  2. Forex Education

    Depreciation: Straight-Line Vs. Double-Declining Methods

    Appreciate the different methods used to describe how book value is "used up".
  3. Investing Basics

    Digging Into Book Value

    This calculation will serve up your portion of the shareholder pie.
  4. Investing

    Cheap Stocks Or Value Traps?

    The value of stocks that trade at less than cash per share can be deceiving.
  5. Personal Finance

    Can You Count On Goodwill?

    Carefully examine goodwill and its sources before considering the value of your investment.
  6. Markets

    Book Value: How Reliable Is It For Investors?

    In theory, a low P/B ratio means you have a cushion against poor performance. In practice, it is much less certain.
  7. Mutual Funds & ETFs

    Strategies For Determining The Market's True Worth

    Learn the strengths and weaknesses of passive and active management when trying to uncover the overall market's worth.
  8. Markets

    Intangible Assets Provide Real Value To Stocks

    Intangible assets don't appear on balance sheets, but they're crucial to judging a company's value.
  9. Fundamental Analysis

    Taking Stock Of Discounted Cash Flow

    Learn how and why investors are using cash flow-based analysis to make judgments about company performance.
  10. Economics

    International Financial Reporting Standards (IFRS)

    International Financial Reporting Standards are accounting rules and guidelines governing the reporting of different types of accounting transactions.

You May Also Like

Hot Definitions
  1. Wash Trading

    The process of buying shares of a company through one broker while selling shares through a different broker. Wash trading ...
  2. Fixed-Income Arbitrage

    An investment strategy that attempts to profit from arbitrage opportunities in interest rate securities. When using a fixed-income ...
  3. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  4. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  5. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  6. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
Trading Center