Cash and Equivalents

Indicator Description

Cash equivalents represent current assets that are easily convertible to cash such as short term bonds, savings account, money market funds, or certificate of deposits (CDs). One of the important consideration companies make when classifying assets as cash equivalent is that investments they report on their balance sheets under current assets should have almost no risk of change in value over the next few months (usually three months).

Cash 
 = 
Bank Deposits 
+  
Liquidities 

Cash or Cash Equivalents are the most liquid of all assets found on the company's balance sheet. It is used in calculating many of the firm's liquidity ratios and is a good indicator of the overall financial health of a company. Companies with a lot of cash are usually attractive takeover targets. Cash Equivalents are balance sheet items that are typically reported using currency printed on notes.

Cash and Equivalents In A Nutshell

Cash and equivalents is exactly what it says, cash and anything that can be converted to cash quickly. Liquid assets would fall under this category and that could be a car, some machinery, or anything that can sell quickly to be turned into cash.

When taking a look at the fundamentals of a stock, you check over everything, the debt, cash flow, outstand shares, and then there is cash and equivalents.

Closer Look at Cash and Equivalents

This is important for a few reasons, and first is you want to know how quickly the company can use these in the case of a complete meltdown in cash flow. There are ratios out there that can tell you how many times the company can pay debts, but you want to ensure cash and equivalents are at respectable levels.

Cash flow is the lifeblood of a company and if that begins to slow there could be some real issues on the horizon. Typically you will know if a company is having cash flow issues and Sears is an example as money continues to be pumped into the company while it is failing.

With all of this being said, be sure to take a real good look at this data point and discover what makes up this line item. Of course there are many other items you should be looking at beside cash and equivalents, but this is a main factor. Technically, this may not be of much use as there is not much of an indicator. Sure there may be data points you can plot at the bottom of a chart, but this should be used more fundamentally than anything. If you ever get stuck, reach out to an investing community and see what others are doing in the market today. When in doubt, research more and more by surfing the web and reading articles. It is important to know what to look for in a stock and learning this will be time well spent.

Other Suggestions

Analyzing currently trending equities could be an opportunity to develop a better portfolio based on different market momentums that they can trigger. Utilizing the top trending stocks is also useful when creating a market-neutral strategy or pair trading technique involving a short or a long position in a currently trending equity.

Generate Optimal Portfolios

The classical approach to portfolio optimization is known as Modern Portfolio Theory (MPT). It involves categorizing the investment universe based on risk (standard deviation) and return, and then choosing the mix of investments that achieves the desired risk-versus-return tradeoff. Portfolio optimization can also be thought of as a risk-management strategy as every type of equity has a distinct return and risk characteristics as well as different systemic risks, which describes how they respond to the market at large. Macroaxis enables investors to optimize portfolios that have a mix of equities (such as stocks, funds, or ETFs) and cryptocurrencies (such as Bitcoin, Ethereum or Monero)
Fix your portfolio
By capturing your risk tolerance and investment horizon Macroaxis technology of instant portfolio optimization will compute exactly how much risk is acceptable for your desired return expectations
Check out your portfolio center. Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..

Other Complementary Tools

Portfolio Diagnostics
Use generated alerts and portfolio events aggregator to diagnose current holdings
Go
Options Analysis
Analyze and evaluate options and option chains as a potential hedge for your portfolios
Go
Idea Analyzer
Analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas
Go
Volatility Analysis
Get historical volatility and risk analysis based on latest market data
Go
Fundamental Analysis
View fundamental data based on most recent published financial statements
Go
Global Correlations
Find global opportunities by holding instruments from different markets
Go
Balance Of Power
Check stock momentum by analyzing Balance Of Power indicator and other technical ratios
Go
Risk-Return Analysis
View associations between returns expected from investment and the risk you assume
Go
Efficient Frontier
Plot and analyze your portfolio and positions against risk-return landscape of the market.
Go
Portfolio Anywhere
Track or share privately all of your investments from the convenience of any device
Go