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Cash and cash equivalents are items on a company’s balance sheet that are either physical currency or liquid investments that can be immediately converted into cash.

Examples include bank accounts, marketable securities with short-term maturities, Treasury bills and money market funds. They are unrestricted, meaning they can be turned into cash with little trouble or delay.

Unlike investments such as stock, cash and cash equivalents don’t typically change in value very much. They represent a company’s liquidity, and reveal aspects of a company’s operational strategy, both important details for potential investors to consider.

Companies use cash to pay debts. The more cash a business has on hand, the less likely it is to struggle to pay its short-term liabilities, or to have difficulty staying afloat when sales slow.

But it’s also important to remember that a company with large amounts of cash on hand may be missing out on the money it could make by investing that cash.

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