Money-market holdings, short-term government bonds, treasury bills and savings bonds are examples of cash equivalents. Cash equivalents are short-term investments that can be immediately converted to cash and mature in three months or less.Continue Reading
A cash equivalent can be identified as short-term investment having little or no risk of a change in value. It is listed as a current asset on a company’s balance sheet. Maintaining adequate cash equivalents is critical to ensuring a company's liquidity. Cash equivalents can be converted to cash to pay dividends to shareholders or to navigate through difficult periods in a business cycle. When profitable businesses with strong cash reserves encounter tough economic conditions, they often use cash reserves to buy weaker competitors or to increase market share through expansion.
It is possible to have too much capital in the form of cash equivalents. Because of their liquidity, cash equivalents do not earn a high rate of return. Although having sizable cash and cash equivalents is generally positive, care must be taken to understand the source of the reserves. If these investments have been purchased through the use of borrowed capital, it does not indicate the same financial strength as if they had been generated through free cash flow.Learn more about Currency & Conversions
A U.S. Treasury Fund is a mutual fund that invests its assets in bonds, bills and notes issued by the U.S. Treasury. These securities are considered some of the safest investments on the market because they are backed by the full faith and credit of the U.S. government.Full Answer >
TreasuryDirect requires individuals to be 18 years or older to create an account for the purpose of purchasing savings bonds. TreasuryDirect allows children under 18 to use an account linked with a parent or guardian in order to receive gifted savings bonds.Full Answer >
Cash, cash equivalents, inventory and accounts receivable are examples of working capital. Calculating net working capital is a way to measure the liquidity of an entity.Full Answer >
U.S. Treasury notes, bills and bonds can be purchased through brokerage firms and banks, or by an individual directly from the U.S. Treasury Department. The method of purchase required depends on the type of treasury security being purchased.Full Answer >