Term · Balance Sheet & Debt
Cash and Cash Equivalents
In briefCash and cash equivalents comprise cash and short-term, highly liquid investments with no material risk of changes in value. They form the basis for metrics such as net debt, net cash, burn rate and cash runway; for small caps, real availability often determines the financing need.
Definition
Cash and cash equivalents comprise cash and short-term, highly liquid investments that can be converted into known amounts of cash without material risk of changes in value.
How it is calculated
Formula. A balance-sheet item under accounting rules. For analysis, examine available, pledged and regulatorily restricted funds separately.
Why it matters for small caps
Cash is the basis for net cash, net debt, burn rate and cash runway. For small caps the actual availability often determines the financing need.
Common misreadings
- Not every euro of reported cash is freely available. Pledged funds, client money and cash in subsidiaries that are hard to transfer from can be restricted.
In the process
Frequently asked
What are cash and cash equivalents?
They are cash and very short-term investments that can be converted into money quickly and with little risk. They appear as a separate balance-sheet item.
How do you examine cash in analysis?
You separate freely available funds from pledged or regulatorily restricted ones. Only the actually usable part helps against a financing bottleneck.
Why is not every euro of reported cash freely available?
Pledged amounts, client money or funds in subsidiaries that are hard to transfer from can be tied up. The balance-sheet figure then overstates the real freedom of action.
Related terms
Sources
Primary
IFRS Foundation – IAS 7 Statement of Cash Flows
https://www.ifrs.org/issued-standards/list-of-standards/ias-7-statement-of-cash-flows.html/
https://www.ifrs.org/issued-standards/list-of-standards/ias-7-statement-of-cash-flows.html/
Methodology
IFRS Foundation – IFRS 7 Financial Instruments: Disclosures
https://www.ifrs.org/issued-standards/list-of-standards/ifrs-7-financial-instruments-disclosures/
https://www.ifrs.org/issued-standards/list-of-standards/ifrs-7-financial-instruments-disclosures/
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.