What is a Cash Position?

A cash position refers to the amount of actual cash a given corporation, bank or other entity has in its possession at a particular point in time. Generally, it includes actual cash or bills that are held by the company. It can also include other assets that are easily turned into cash, referred to as liquid assets, such as short-term bonds or certificates of deposits. It does not include assets that have a low degree of liquidity, such as products, real estate, machines or other items that cannot quickly and easily be turned into cash money.

While technically individuals can have a cash position equal to the amount of their liquid investments, the term is most often used in a business context. A company, for example, lists its cash position on its balance sheet and reports that cash position to investors, lenders or other interested parties. A bank must have a cash position as well.

Generally, banks are required to have a set minimum amount of cash available based on the amount of funds people have deposited into the bank. For example, if a brand new bank opened and 100 individuals each deposited $10 US Dollars (USD), the cash position required of the bank would be based on the $1,000 USD in funds deposited. The bank would thus be required to have at least $1,000 USD in cash so that it would have the money to pay each of those people if they all came to take their money out at the same time.

For corporations, on the other hand, determining how much cash to have can be tricky. Generally, a company does not want to have too little cash available. Cash is required to fund business growth and to make purchases of supplies and services necessary to run the business. Cash can also be a sign of financial solvency and stability within the company. Cash, however, generates a relatively low return on investment as compared to other less liquid investments, and as such having too much cash on hand can be a downside to the company.

Investors may look at the cash positions of different companies when determining whether to invest or not. If the company does not have what is deemed an appropriate amount in cash, it can appear to be a poor investment. Achieving the proper balance is thus essential for a public company looking to attract investors.