Cash Equivalents

Cash equivalents are short-term, highly liquid investments that are readily convertible to cash. They are typically used to meet short-term cash needs and are considered to be low-risk investments.

Cash equivalents include:

• Treasury bills
• Commercial paper
• Money market funds
• Certificates of deposit
• Banker's acceptances

Cash equivalents are not considered to be investments because they do not generate a return. However, they are still important to a company's financial health because they can be used to meet unexpected cash needs.

Cash equivalents are also used to calculate a company's working capital. Working capital is the amount of cash and other liquid assets a company has available to fund its day-to-day operations. A company's working capital is calculated by subtracting its current liabilities from its current assets.

Cash equivalents are an important part of a company's financial health. They can be used to meet short-term cash needs and to calculate a company's working capital.