Here we will answer a couple of quick questions on Colgate’s Cash to master this concept further. Cash equivalents include highly liquid instruments with maturities of less than 90 days. Here we discuss the list of Cash and Cash Equivalents, examples of Colgate, P&G, and Apple and also the top 3 reasons why firms hold cash. Examples of cash equivalents include savings account, bonds (especially near their maturities), and money markets. Examples of cash equivalents include U.S. treasury bills, money market funds, and commercial paper, which is short‐term corporate debt. Cash and Cash Equivalents (CCE) Cash is a form of money that a company can use to run its business. The investment should be short term. It is important that the company has enough cash to run its day to day operations without running to the bank every now and then. Colgate’s Total Sales in 2014 = $17.277 bn. The full list of cash equivalents includes the following items with maturity dates that are typically three months or less: 1. In this case, one of the strategies could be to provide a return to the shareholders by buying back shares. There are different reasons why a firm may want to keep reasonable levels of CCE. When a company is not using its cash balance, it may invest its cash in very low-risk liquid (easily sold) securities so it can generate interest income. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy. Companies may elect to classify some types of their marketable securities as cash equivalents. If we note Apple’s example, we will get some insights on the same. Cash and Cash Equivalents: 1. Combination of all these indicates that Apple might be looking for some acquisition in the near term. Many thanks, and take care. Within this group, such items as Treasury bills and money market funds are common types of this sort of asset. Accounting entry: The balance sheet shows the amount of cash and cash equivalents at a given point in time. Cash as % of Total Assets = 8.558 / 144.266 ~ 6% 4. Though we see that there is nothing too exciting about the Cash here, if we closely look at all the Investments, we note that Apple Inc has a huge pile $13.844 bn (cash & cash equivalent) + $11.233 bn (short term investments) + $130.162 bn (long term investments) = $155.2 bn. However, it also means that equivalents struggle to keep up with inflation. Another good reason for its pile-up is for near-term acquisition. Cash equivalents, in general, are highly liquid investments having the maturity of three months or less, have high credit quality and are unrestricted so that it is available for immediate use. When cash equivalents are purchased and sold as part of the agency's cash management process, the associated cash flows are not reported as inflows and outflows on the statement of cash flows. When this happens, the company loses out on potential revenue, as money that could have produced a higher return elsewhere was committed to the cash account. For example, if a business spends Rs.1000 on buying goods, this is shown as Rs.1000 increase in cash outflow and reduction in cash and cash equivalents value. Copyright © 2020. Many theories exist about how much companies should hold. Cash is a liquid, portable, and desirable asset. An item should satisfy the following criteria to qualify for cash equivalent: The investment should be short-term. An item should satisfy the following criteria to qualify for cash equivalent. Colgate has $0.962 bn and $1.089 billion of CCE in 2013 and 2014, respectively. An item should satisfy the following criteria to qualify for cash equivalent. 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