Cash and Cash Equivalents (CCE)

Cash is a key indicator of business health, indicating a company’s ability to meet its operating obligations including paying any short-term debt. The amount of Cash and Cash Equivalents a company has on hand to pay its operating obligations is often referred to as its runway. Especially in challenging economic times, companies are very focused on how they can extend their runway.

Cash encompasses cash on hand and any deposits made in financial institutions, whereas cash equivalents are short term investments that are liquid and easy to sell, generally with a maturity period of three months or less.

Businesses add the total value of cash on hand and the total value of cash equivalents to obtain Cash and Cash Equivalents. CCE is represented as the top line item on a company’s Balance Sheet, because they are the most liquid, or readily usable form of asset a company has.

The movement of cash within a business is known as cash flow. This can be further categorised into cash inflow and cash outflow. Cash inflow is the movement of cash into a business, sourced from activities such as payments received from customers; this cash is used to make payments or reinvest into the business which is known as cash outflow. A positive cash flow is desired because it indicates that there is cash available for the business to conduct its operations, investments, and other financial activities.

To track cash and cash equivalents, businesses use cash flow statements. Cash flow statements track each change to cash while conducting business and tabulate the total amount of cash available after these activities have taken place, also known as net cash flow. Activities that cause these changes in cash are categorized into operating, investing, and financing activities.