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.
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.
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Nathan Young is a Senior Member of Macroaxis Editorial Board - US Equity Analysis. With years of experience in the financial sector, Nathan brings a diverse base of knowledge. Specifically, he has in-depth understanding of application of technical and fundamental analysis across different equity instruments. Utilizing SEC filings and technical indicators, Nathan provides a reputable analysis of companies trading in the United States.
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