Unrestricted Cash
Candlefocus EditorUnrestricted cash is cash that’s readily available for spending by an entity without restriction on its usage and without it having been pledged as security for debt or any other type of legal obligation. Unrestricted cash is typically listed as a current asset on a balance sheet, since it can be used to fulfill short-term obligations, like current liabilities.
In financial modeling, unrestricted cash is often considered to be the same as cash and cash equivalents, which generally include all forms of liquid assets like bank balances, securities, and money market funds. Other language such as "liquid cash" may also be used when referring to unrestricted cash.
Examining and monitoring a company's unrestricted cash can provide valuable insight into its financial health, as well as information on the effectiveness of its financial management.
Unrestricted cash is all the money that an entity has that it can use however it wants. It is the money that a company has in its accounts, usually similar to the idea of cash in a bank account. It is not restricted or dedicated to any specific purpose, and it is likely to be the most liquid form of an entity's assets. This means that unrestricted cash is likely to be seen as the safest part of a company’s assets, providing they are able to use it to pay their liabilities when they fall due.
It is important to distinguish between unrestricted cash and restricted cash. Restricted cash is cash that has been set aside for a specific purpose and cannot be used for any other purpose without a legal release. This might include cash set aside for a loan or other legal obligation or cash that is restricted under the terms of a financial facility or agreement. As a result, when examining a company's unrestricted cash, it is important to also consider any other cash balances a company might hold in restricted programs.
Unrestricted cash on a balance sheet can also provide a good indication of how successful a company’s financial management has been. If a business has a large amount of unrestricted cash then it might be a sign of responsible cash management and a healthy balance sheet. On the other hand, if a business has a low level of unrestricted cash then it might indicate some weaknesses in financial management and liquidity problems.
Unrestricted cash is an indicator of financial health and a very important piece of information for any analysis of a company. It is also a useful metric for assessing the financial health of a business over time, since it shows how much cash a business has available to spend on operations and investment. Finally, it can also be used to compare the financial strength of different companies in the same industry, since it provides a good indication of liquidity and financial strength.