Cash

The lifeblood of business

What is Cash?

In finance and accounting, cash refers to money (currency) that is readily available for use. It may be kept in physical form, digital form, or invested in a short-term money market product. In economics, cash refers only to money that is in the physical form.

Cash in Business Operations

Cash is the lifeblood of a business. For a company to cover its operating expenses, it needs to have sufficient money on hand to pay its employees, contractors, vendors, and suppliers. Companies also need money to fund capital expenditures and invest in long term growth projects.

If companies don’t have enough cash on hand, they may need to finance their OpEx and CapEx by borrowing money (debt) or issuing shares (equity).

Financial Modeling and Business Valuation

The intrinsic value of a business is generally considered to be the net present value (NPV) of all its future cash flows. After all, an investor purchases a company to make a return on investment (ROI), and the return comes in the form of cash. Learn more about financial modeling and valuation in CFI’s financial analyst courses.

Image: CFI’s Advanced Amazon Financial Modeling Course

Cash in Financial Statements

Cash plays an important role in the financial statements of a company. On the balance sheet, it appears as the first item at the top since it’s a company’s most liquid asset. Companies often include “cash equivalents” in this category, which are money market funds and other short-term investments that are easily convertible into cash.

To reconcile the changes in an amount over a period, accountants prepare a statement of cash flows, which shows all money that was generated and consumed by a business, ending with the net change in money at the bottom.

Below is an example of Amazon’s 2017 balance sheet, where you can see the amount recorded on the very first line of the statement.

Learn more in CFI’s Free Accounting Courses.

Money in Economics

In economics, the term refers to money in the physical form, which includes all types of legal tender, such as bills and coins. It is used as a reserve for making payments and is an important part of macroeconomic policies, including the money supply.

Additional Resources

CFI offers the Commercial Banking & Credit Analyst (CBCA)™ certification program for those looking to take their careers to the next level. To keep learning and developing your knowledge base, please explore the additional relevant resources below:

• Time Value of Money
• Money Order
• Hot Money
• Fiat Money
• See all accounting resources
• See all capital markets resources