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. Book Value

    1. The value at which an asset is carried on a balance sheet. ...
RELATED FAQS
  1. To what extent will changing fuel costs affect the profitability of the airline industry?

    Fuel costs represent one of the biggest expenses for the aerospace and airline industries. On average, fuel costs account ... Read Full Answer >>
  2. What debt to equity ratio is common for a bank?

    The average debt-to-equity ratio for retail and commercial U.S. banks, as of January 2015, is approximately 2.2. For investment ... Read Full Answer >>
  3. What is the average profit margin for a company in the banking sector?

    The average net profit margin for retail or commercial banks, as of January 2015, is approximately 18%. This compares favorably ... Read Full Answer >>
  4. How can an investor evaluate the leverage of an insurance company?

    For investors conducting fundamental analyses of insurance companies, leverage can have multiple definitions. Insurance leverage ... Read Full Answer >>
  5. What is the usual profit margin for a company in the insurance sector?

    The best estimates of the average insurance company net profit margin are between 3 and 8%, with a likely median average ... Read Full Answer >>
  6. What financial ratios are most useful for an investor to evaluate the liquidity of ...

    An insurance company, like any other nonfinancial company, needs access to liquidity in case it needs to fulfill its debt ... 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. Investing

    What A Rate Hike May Mean For Stocks

    By the end of the year, investors will likely be contending with the first Federal Reserve (Fed) rate hike in nearly a decade.

You May Also Like

Hot Definitions
  1. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  2. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  3. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  6. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
Trading Center