What is Net Cash

Net cash is the final amount of a company's total cash minus total liabilities reported on financial statements. It is commonly used in evaluating a company's cash flows. Net cash also refers to the amount of cash remaining after a transaction has been completed and all associated charges and deductions have been subtracted.


Net Cash


Net cash may also be considered the short form when referring to net cash per share as it relates to stock investing. The term can be modified to distinguish the function of the funds, such as net cash flow, which describes incoming funds received within a period. Investors can use net cash to help determine whether a company's stock is an attractive investment, and it may be used in conjunction with other measures to gauge the company's overall liquidity.

Net cash refers to the amount of liquid funds gained or lost after all obligations and liabilities are deducted from a single transaction or multiple transactions. Obligations can include standard operating costs, payments on debts, and investment activities. Calculating net cash begins with summing all receipts for a period, often referred to as the gross. Once totaled, obligations and liabilities are deducted, and the difference is net cash.

Net Cash Flow

Net cash flow refers to the gain or loss of funds over a period after all debts are paid. When a business has a surplus of cash after paying all its operating costs, it is said to have a positive cash flow. If the company is paying more for obligations and liabilities than what it earns through operations, it is said to have a negative cash flow.

A negative cash flow does not mean a company is unable to pay all of its obligations; it means that the amount of cash received for that period was insufficient to cover obligations of the same time period. If other savings vehicles are liquidated to meet the obligation or additional debt is accrued that does not involve the receipt of a lump sum deposit, a company can meet all of its obligations while maintaining a negative cash flow.

Analysis of Net Cash

Analyzing what contributes to positive or negative net cash is essential when using net cash as a barometer for determining the financial health of a company.  Positive net cash from events such as increased profits from sales or reduced obligations can be indicative of a well-functioning, healthy firm.  However, certain activities may result in a positive cash flow that may not reflect positively on a company’s financial health, such as money received as a result of incurring a new debt or activities associated with a lump-sum loan deposit.