Cash position reflects the amount of cash or cash a company has at a certain point in time. Cash position is an indicator of the financial health of a company. In general, companies that have large amounts of cash are considered financially strong and have good liquidity.

Even though in naming only the term cash is used, in financial analysis, assessing a company’s cash position also considers highly liquid assets, such as certificates of deposit, short-term government debt, and other cash equivalents.

Assess the company’s cash position

Companies with stable cash positions have very low downside risk. The meaning of a stable cash position is a position that allows a company to cover its short-term liabilities using cash and other liquid assets. Additionally, cash can also be used to fund expansion whenever it is needed.

When we want to assess which company has a strong financial position, we need to look at the value of its current liabilities and interest-bearing debt. When a company has large amounts of cash as well as a small amount of current liabilities and interest-bearing debt, it is a signal that the company has a strong financial position.

Next, we can assess the strength of a company’s cash position through its liquidity ratio. For example, the cash ratio is derived from the sum of cash and cash equivalents with marketable securities accounts , the result is then divided by current liabilities. This ratio measures a company’s ability to cover its short-term liabilities using the most current assets. If the ratio is greater than one, it means that the company has sufficient cash to continue operating.

Cash position can also be checked by looking at the company’s free cash flow. FCF is calculated from the sum of net profit and non-cash expenses (such as depreciation) and the result is then reduced by capital expenditures and changes in working capital.


We need to remember, a cash position that is too large also involves opportunity costs. Because cash has very low or even negative real returns after considering the impact of inflation, most portfolios would earn higher returns if invested. For example, it is used for business expansion.

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