Most of the time, when an investor or analyst searches through the financial statements of a publicly traded company, he or she will run across a reference to short-term liquid assets, or cash and cash equivalents. A lot of companies explain cash positions in a couple of sentences, if not a paragraph, that is similar to the following:

Liquidity
The following summarizes our cash and cash equivalents and marketable securities:

Cash and cash equivalents: $239
Marketable securities: $154
Total: $393

This example shows that a business using short-term marketable securities classifies them as a "cash equivalent". Marketable securities generally refer to an investment in commercial paper, banker's acceptances or Treasury bills. These securities are highly liquid, and generally provide the company a bit of a return on its investment - likely just enough to keep up with inflation. If all of the company's cash equivalent reserves are tied up in cash, it will lose a little bit of spending power every year to inflation.

Investment in equity is investment in stocks, or similar securities. While these are usually recognized as being highly liquid, they have a tendency to fluctuate in value - often dramatically. Stocks are not a great investment for a cash equivalent account. Although they can be readily converted to cash, there may be a significant spread between a stock's book value and its current price. A negative spread could result in a cash crunch. (See What's the difference between book and market value?)

The essential thing to note is that a marketable security will likely only be worth significantly less than what it was purchased for if there's a spike in interest rates. Equity investments, on the other hand, have a lot more potential to drop in value and are, therefore, not considered cash equivalent investments.