Category: 

What is Cash Equity?

Article Details
  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 18 November 2014
  • Copyright Protected:
    2003-2014
    Conjecture Corporation
  • Print this Article
Free Widgets for your Site/Blog
General George Patton failed math and had to repeat his first year at the US Military Academy.  more...

November 21 ,  1969 :  The first Advanced Research Projects Agency Network (ARPNET) link was permanently established for the first time.  more...

Cash equity is all about understanding the current status of an investment portfolio. Essentially, it is the net worth of all cash that could be derived from the investments and securities that are included in the portfolio. Monitoring the cash equity is a great way to make sure that the current mix of investments is working, as well as a good strategy in determining what to keep and what to sell.

Calculating the cash equity is a simple process. First, compile a list of all debits that are associated with the financial portfolio. Once this list is complete, make a second list that notes each credit that is current associated with some item in the portfolio. Subtracting the credits from the debits will result in determining the overall cash equity of the current set of investments.

Along with using this formula to monitor the cash equity of the portfolio in general, the same approach can be applied to individual assets within the current roster of events. By considering each asset and evaluating the ratio between any credits and debits that apply, it is possible to decide if hanging on to the asset is a good idea, or if it is time to sell. This approach will help to keep the overall strength of the investment portfolio as healthy as possible.

Ad

It is important to realize that just about any set of investments will have a mixture of active debits and credits at any given time. The new investor should not be alarmed by the presence of debits. However, if the equity indicates that there are more debits involved with the current investments than there are credits, it is obvious that some changes are in order.

Cash equity can be applied in other financial strategies as well. For example, the basic formula for calculating it also lends itself well to looking at the financial health of a company before choosing to invest in the corporation. If the corporation does not maintain a healthy ratio between the debits and credits between investments, then choosing to invest resources in the company is probably not a good idea.

Ad

More from Wisegeek

You might also Like

Discuss this Article

anon347612
Post 4

Cash Equity is more of trading in the stock market (individual stocks), whereas Equity Derivative is trading in stock indexes.

anon160456
Post 3

A cash equity simply means the actual unit of stock. E.g. A cash equities trader actually trades the stocks on an exchange

An equity derivative is a synthetic or structured product which may or may not involve actually holding the underlying stock. E.g. A structurer may build a structured note that is linked to only the performance of an underlying equity - the equity itself is not part of the product. Leveraged options replicate actually holding the stock itself.

anon31412
Post 2

@ anon23988

I think a cash equity is a term used by derivatives people to describe normal equities, but I'd like it confirmed too.

anon23988
Post 1

What is the difference between Cash Equities and Equities Derivatives?

Post your comments

Post Anonymously

Login

username
password
forgot password?

Register

username
password
confirm
email