CFA Practice Question
What should an analyst look for when evaluating a firm's cash and cash equivalent position that would cause the firm's cash position to be less liquid?
A. The amount of stock dividends required during the coming year
B. Potential limitations on the use of cash (such as restricted balances)
C. The amount of deposit collection float
Explanation: Companies may have restrictions placed upon the disposition of their cash position. For example, a firm may maintain cash equivalents that are earmarked for plant expansion, sinking fund payments, or legally restricted compensation balance requirements. A careful review of the firm's operations must be undertaken to uncover any cash or cash equivalents that are restricted from use in the general operation of the business.
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