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. Mid Cap

    A company with a market capitalization between $2 and $10 billion.
  5. Market Capitalization

    The total dollar market value of all of a company's outstanding ...
  6. Trading Range

    The spread between the high and low prices traded during a period ...
RELATED FAQS
  1. What's the difference between the coverage ratio and the levered free cash flow to ...

    Coverage ratios focus on a company’s ability to manage its debt, while the levered free cash flow to enterprise value ratio ... Read Full Answer >>
  2. What are some ways a company can improve on its Return on Capital Employed (ROCE)?

    Options available to a company seeking to improve on its return on capital employed (ROCE) ratio include reducing costs, ... Read Full Answer >>
  3. When can I use the Dividend Discount Method (DDM) to value a stock?

    Investors can use the dividend discount model (DDM) for stocks that have just been issued or that have traded on the secondary ... Read Full Answer >>
  4. What exactly does EBITDA margin tell investors about a company?

    EBITDA stands for earnings before interest, taxes, depreciation and amortization. EBITDA margins provide investors a snapshot ... Read Full Answer >>
  5. How does DuPont Analysis measure operating efficiency?

    The basic DuPont analysis formula, sometimes called the three-step DuPont model, uses net profit margin as its measure for ... Read Full Answer >>
  6. Why would you look at a company's net debt rather than its gross debt?

    Understanding debt carried by a company is key to gaining insight into its financial health. One of the various ways an observer ... 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

    What is a Management Buyout?

    A management buyout, or MBO, is a transaction where a company's management team purchases the assets and operations of the business they manage.

You May Also Like

Hot Definitions
  1. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  2. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  3. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  4. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
  5. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
Trading Center