Cash position

Your cash position indicates your company’s financial health at a specific moment.  It serves as a sign of financial strength and liquidity. 

A strong cash position allows a company to cover its current liabilities with cash. When a company has a large cash position above and beyond its current liabilities, it is a powerful signal of financial strength. 

The cash position will often be calculated by including highly liquid assets such as accounts receivables and short-term investments.

How do you calculate your cash position?

The cash position can be measured using a company’s cash flow statement. Adding up the total cash from operating, investing and financing activities will give you a company’s cash position for the assessed period.

The cash position can also be measured using the current and quick ratios. The current ratio is calculated by dividing your current assets by your current liabilities. Meanwhile, the quick ratio divides the inventory-excluded current assets by current liabilities (excluding the current portion of long-term debts).

Knowing your cash position every month helps you better plan your cash flow needs. This is important because a company in a period of very rapid growth often faces cash-flow challenges.

Knowing whether you have enough cash to meet your company’s needs when you win new contracts or make acquisitions is critical to your success.

Next step

Find out how much cash you can expect to flow in and out of your business over the following weeks or months with our easy-to-use cash flow calculator for entrepreneurs.