Cash Position

Cash position is a rather delicate, PC way of saying “How much cash ya got?”

This number shows how much actual cash, and liquid (easily turned into cash) assets a business has, like short-term investments. It’s measured in comparison to the businesses liabilities.

Ideally, the business wants to have enough cash on hand to cover all its current liabilities. Investment banks are actually required to have a certain amount on hand, so they could cover all their accounts if everyone withdrew at once. It’s tricky though...for most businesses, too much cash on hand can get a raised eyebrow too, because it’s not being invested where it can draw big returns.

Investors care about a company's cash position because it signifies the balance sheet health or liquidity in the business.

Example: You own shares in a whoopee cushion factory. If the company has a healthy cash position, you can rest assured this company is financially strong. The whoopee cushions are running on their own power, without debt carrying the business along. On the other hand, if the whoopee cushion factory has a weak cash position, in that it can’t cover all its liabilities easily, that tells you it’s all hot air and, uh...may be about to pop.