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What is Net Cash?

Deanira Bong

Last Modified Date: February 25, 2024

Net cash refers to the amount of money that remains after deducting all other charges, liabilities and cash flows. In financial statements, it could refer to the cash that a company has after deducting all its liabilities. Stock investors could use the term as a short form for net cash per share, which is the amount of cash and near-cash assets that a company has after deducting short-term borrowings, divided by the number of shares. It could also refer to net cash flow or balance.

A company's balance sheet usually lists its assets, liabilities and shareholders' equity. Listed under assets, cash represents the liquid assets that the company owns; this often includes cash, cash equivalents and short-term investments. In this context, net cash refers to the cash that remains after deducting the company's debt liabilities. For example, if a company has $1 million US Dollars (USD) in cash and it owes the bank $500,000 USD, then it has net cash of $500,000 USD.

Net cash per share makes the term more relevant to the company's investors. It represents the amount of money the company has, divided by the number of shares in issue. For example, if the company from the previous example has 1,000 shares in issue, then the net cash per share is $500. If the company's share trades below $500 on a stock exchange, investors refer to the stock as a net cash stock. These numbers helps investors gauge the company's health and compare stocks from different companies.

The profit or loss that a company makes in a period of business is called net cash flow or income. To calculate this number, a person can deduct a company's cash outflows from its cash inflows. For example, a company makes $5,000 USD in sales in January and pays $2,000 USD for stock purchases, salaries and taxes. Deducting $2,000 USD from $5,000 USD, the company has a net cash flow of $3,000 USD in January.

Net cash balance or position refers to the amount of cash that a company already has, plus the amount of net cash flow that it gets at the end of a period. It is specific to a certain point in time because the number fluctuates depending on the company's cash flows. For example, if the company from the previous example has a cash balance of $50,000 USD in the bank at the end of December, then it has a net cash balance of $53,000 USD at the end of January.

Discussion Comments

miriam98

December 14, 2011

@Mammmood - I am struck by the term “net cash per share.” While I understand it, I think it’s the same thing in the investment world as “earnings per share,” which seems to be the more common term.

It’s an important metric and one that I paid attention to as an investor. Another figure that I referred to was the price to earnings ratio, but again that is affected by the earnings per share.

I was a value investor so I wanted to find companies that had good price to earnings ratios along with strong earnings per share. Those were the companies likely to remain strong over the long haul, in my opinion, and were not overvalued.

Mammmood

December 13, 2011

There aren’t many numbers in business that I understand, but the net cash flow formula is one that I do. It’s really the only thing that matters, as I think should be obvious.

I used to work for a large telecommunications firm, and we were hemorrhaging cash very fast. Telecommunications is very capital intensive. We had billions of dollars invested in infrastructure, financed through bank loans.

As long as we could service the debt on those loans, the investors were happy. However, they weren’t happy when they saw that we were running out of cash, and in a hurry.

We burned through our cash in less than five years and filed for bankruptcy. The funny thing was that since it was a public company, they put all the numbers out there, and it was easy to figure out when “D day” was coming, based on our cash burn rate. You didn’t need to be an analyst to know that.