Cash and Cash Equivalents
The most liquid assets on the balance sheet.
Definition
Cash and cash equivalents include currency, demand deposits, and short-term highly liquid investments with maturities of three months or less. For banks, this also includes reserves held at the Federal Reserve.
Why It Matters
Adequate cash reserves ensure a company can meet short-term obligations. For banks, liquidity is existential—a cash shortfall can trigger a run, as demonstrated in the rapid collapse of Silicon Valley Bank in 2023.