What is a 'Cash Position'

A cash position represents the amount of cash that a company, investment fund or bank has on its books at a specific point in time. The cash position is a sign of financial strength and liquidity. In addition to cash itself, this position often takes into consideration highly liquid assets, such as certificates of deposit, short-term government debt and other cash equivalents.

BREAKING DOWN 'Cash Position'

A cash position refers specifically to an organization's level of cash in relation to its expenses and liabilities. Internal stakeholders look at cash position as frequently as daily, while external investors and analysts look at an organization's cash position on its quarterly cash flow statement. A stable cash position is one that allows a company or other entity to cover its current liabilities with a combination of cash and liquid assets.

However, when a company has a large cash position above and beyond its current liabilities, it is a powerful signal of financial strength. This is due to the fact that cash is needed to fund growing operations and pay off obligations. However, too large of a cash position can often signal waste, as the funds are generating very little return.

Other organizations, such as commercial and investment banks, are generally required to have a minimum cash position, which is based upon the amount of funds it holds. This ensures that the bank has the ability to pay out its account holders if they demand funding. When an investment fund has a large cash position, it is often a sign that it sees few attractive investments in the market and is comfortable sitting on the sidelines.

Cash Position and Liquidity Ratios

An organization's cash position is usually analyzed through liquidity ratios. For example, the current ratio is derived as a company's current assets divided by its current liabilities. This measures the ability for an organization to cover its short-term obligations. If the ratio is greater than one, it means that the company has adequate cash on hand to continue to operate.

A cash position can also be found by looking at a company's free cash flow (FCF). This FCF can be found by taking a company's operating cash flow and subtracting its short-term and long-term capital expenditures.

Example of Cash Position

Outside analysts often look at a company's FCF to gauge its performance. For example, Chase Corp., as of July 14, 2016, has an FCF that is 40% higher than its net income, which represents an FCF yield of 7.2%. This means that its available FCF is $34 million per year, which is expected to be used to cover its credit line obligation with Bank of America.

RELATED TERMS
  1. Free Cash Flow - FCF

    Free cash flow represents cash a company can generate after accounting ...
  2. Trailing FCF

    Trailing free cash flow (FCF) measures the company's free cash ...
  3. Cash Ratio

    The cash ratio is the ratio of a company's total cash and cash ...
  4. Cash Per Share

    Cash flow per share is the broadest measure of available cash ...
  5. Net Cash

    Net cash is the result of a company's total cash minus total ...
  6. Cash Flow

    Cash flow is the net amount of cash and cash-equivalents being ...
Related Articles
  1. Investing

    Free Cash Flow: Free, But Not Always Easy

    Free cash flow is a great gauge of corporate health, but it's not immune to accounting trickery.
  2. Investing

    Understanding financial liquidity

    Financial liquidity comes into play for companies, your personal finances, investing, and the financial markets. However, assets and investments have varying liquidity levels.
  3. Investing

    Analyze cash flow the easy way

    Learn the key components of the cash flow statement, how to analyze and interpret changes in cash, and what improved free cash flow means to shareholders.
  4. Investing

    Corporate Cash Flow: Understanding the Essentials

    Tune out the accounting noise and see whether a company is generating the stuff it needs to sustain itself. Learn how to read the cash flow statement.
  5. Investing

    Free Cash Flow Yield: The Best Fundamental Indicator

    Cash in the bank is what every company strives to achieve. Find out how to determine how much a company is generating and keeping.
  6. Investing

    Cash: Can A Company Have Too Much?

    Cash is something companies love to have. But if they are not using it there could be problems.
  7. Investing

    What Is a Cash Flow Statement?

    The Cash Flow Statement measures whether a company generates enough cash to meet its operating expenses.
  8. Investing

    Operating Cash Flow: Better Than Net Income?

    Differences between accrual accounting and cash flows show why net income is easier to manipulate.
RELATED FAQS
  1. What's the formula for calculating free cash flow?

    Free cash flow is the cash left over after a company pays for its operating expenses and capital expenditures. High free ... Read Answer >>
  2. What is the difference between cash flow and free cash flow?

    Learn about the main differences between cash flow and free cash flow. In addition to the differences, learn how to calculate ... Read Answer >>
  3. Where Do Companies Keep Their Cash?

    Cash and cash equivalents are the first items on a company's balance sheet, but they are not same. Read Answer >>
  4. How should I evaluate a company with negative cash flow investing activities?

    Negative cash flow from investing activities should be evaluated since it could be a warning sign. However, it can also mean ... Read Answer >>
  5. What changes in working capital impact cash flow?

    Working capital is the amount of money a company has available to pay its short-term expenses. Cash flow is the amount of ... Read Answer >>
Hot Definitions
  1. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  2. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  3. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
  4. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
  5. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  6. Cost of Debt

    Cost of debt is the effective rate that a company pays on its current debt as part of its capital structure.
Trading Center