Cash Reserves

Posted in Finance, Accounting and Economics Terms, Total Reads: 658
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Definition: Cash Reserves

In Finance, cash reserves denotes to two things as discussed below:

• Short term cash reserves: money saved by individuals or company primarily in cash to meet short-term demands or emergency needs.

• Short term investment: This is the type of liquid investment done at low interest, which company or individuals do to have quick access. For example: in some of the mutual funds, this is done.


Its name is derived from the fact that one can derive cash from this reserve quickly. This is also done until a more permanent type of investment opportunity is available.


Examples of cash reserves for a company: 8 month- emergency funds, treasury bills


Examples of cash reserves for individuals: checking account, saving account, money-market funds, money market accounts.


For a company, cash reserves are an important assets as it shows the amount of liquidity the company has at hand. A business that has lack of sufficient cash reserves resorts to credit or may also lead to bankruptcy in extreme cases.

A company’s capital adequacy is assessed by various ratios incorporating cash reserves. Thus it is advisable to the company to maintain its cash reserves.

 

Hence, this concludes the definition of Cash Reserves along with its overview.

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