Cash and Cash Equivalents


Cash and Cash Equivalents

Shruti Chand

In this article, Shruti Chand (ESSEC Business School, Master in Management, 2020-2022) elaborates on the concept of cash equivalents

This read will help you get started with understanding the concept and its significance in determining financial health of a business.


Cash and Cash Equivalents on the assets side of the balance sheet is the total amount of cash or assets that can be converted into cash on an immediate basis. Any bank accounts or marketable securities that a business owns can be categorised as cash equivalents.

What is included in Cash and Cash Equivalents?

Cash equivalents are the assets with short maturities typically 90 days or less. Examples of cash equivalents on a firm’s balance sheet include:

  • Treasury Bills
  • Money market mutual funds
  • Commercial Paper (bought from other firms)
  • Bank Certificates of deposit
  • Repurchase agreements
  • Other money market instruments

Cash on the other hand is not limited to the amount of money in checking and savings accounts (and coins and banknotes). It also includes assets such as cheques received but not deposited.

Cash and Cash Equivalents is recorded in the balance sheet in the “Current assets” section. Cash and Cash equivalents are related to other current assets that will transformed into cash later.


Measure of liquidity:

Cash and Cash equivalents are used to measure the liquidity of the firm. For example, in financial analysis, it enters the computation of liquidity ratios.


Final Words:

Cash and Cash equivalents may be a small part on the balance sheet of a firm but have a lot of impact as it is used to pay day-to-day operations of the firm on a very frequent basis.


Relevance to the SimTrade certificate

This post deals with Cash and Cash equivalents that helps investors study the liquidity state of company they would like to invest in.

About theory

  • By taking the SimTrade course, you will know more about how investors can use various strategies to invest in order to trade in the market.

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About practice

  • By launching the series of Market maker simulations, you can extend your learning about financial markets and trading approaches.

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About the author

Article written by Shruti Chand (ESSEC Business School, Master in Management, 2020-2022).

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