Cash equivalent - Financial definition
Concise definition of the term cash equivalent
Cash equivalents are highly liquid assets that are easily convertible into cash within a short period, typically less than three months.
Comprehensive definition of the term cash equivalent
In finance, cash equivalents encompass short-term investments that hold a high degree of liquidity and low risk, making them readily convertible to cash without significant loss of value. Examples include Treasury bills, commercial paper, and money market funds. They serve as a crucial component of a company's liquidity management strategy, providing a safe haven for excess cash while offering slightly higher returns than traditional cash holdings. Cash equivalents play a vital role in maintaining financial stability and meeting short-term obligations for businesses and investors alike.