Cash Position

Posted in Finance, Accounting and Economics Terms, Total Reads: 903
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Definition: Cash Position

Cash position refers to the amount of cash that a company or a bank holds on its books at any specific point in time. In addition to cash, it also takes highly liquid assets such as marketable securities, Certificate of deposit and other cash equivalents into account.


Cash position is often considered as a symbol of financial strength and liquidity (ability to pay short term obligations) for a company.

 

Implications of Cash Position:

Company

A company’s weak cash position predicts the possibility of problems happening in the form of default in payments of liabilities and obligations. A strong cash position signals stability and strength of fundamentals.

When interest rates are low, a large cash position points towards mis-management, because of little return on cash.


Bank

A bank's cash position at any given time is an indicator of the total quantum of cash held in cash, cash equivalents, and short term government debt. Banks are required to hold a minimum amount of cash wich can be either deposited in its vaults or at a central bank.(called its reserve ratio)


Investment Fund

Investment companies can signal their view of the market using their cash position:

1. Fund with a low cash position is more likely to be bullish on the market.

2. A large cash position on the other hand denotes that the company is not willing to be a buyer/investor.

 

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