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Main Dictionary N

Net Cash

Net cash means a figure that is reflected in the enterprise’s financial report. It can be accounted for by deducting total obligations from the total amount of funds. Net cash calculations are applied for estimating cash flows of the firm. The indicator may also refer to the sum of money, which is left after completing a transaction and subtracting all the connected charges and payoffs. 

Essence of Net Cash

Compared to the current ratio, net cash is considered a way of evaluating enterprises' liquidity or, in other words, its possibility to repay obligations. These financial liabilities may comprise general operational costs, business activities, as well as debt payments. 

Money received for a certain period should be added together to count net cash. At the same time, credit cash is not included. The amount of financial facilities can be called gross cash. After summarizing, cash outflow for liabilities is subtracted from gross cash. As a result, there is the exact same formula for estimating net cash.

Net cash per share makes the term more relevant for the enterprise’s investors. It represents the amount of money a firm has, divided by the number of issued shares. For example, if a company possesses 1,000 outstanding shares, then the net cash per share is $500. In case the enterprise’s stocks are trading below $500 on the exchange, investors refer to the shares as net cash. These figures assist brokers and traders in defining the firm’s health and comparing shares of different enterprises.

Differentiation between Net Cash and Net Cash Flow

The profit or loss that an enterprise earns over the activity period is called net cash flow or income. To calculate the number, a person can subtract the company's cash receipts from its cash inflows. 

A case in point is a firm, earning $5,000 in January and subsequently paying $2,000 in stock purchases, payroll, and taxes. So the company has a net cash flow of $3,000 in January, meaning a positive settlement. Otherwise, if payments on liabilities are higher than the enterprise’s income, a negative cash flow is predicted. 

Therefore, a positive or negative cash flow is of vital importance for using net cash. It plays a role of a particular determinant for the firm’s financial standing. Positive net cash indicates a highly performing enterprise. Factors such as sales profit increase or fewer obligations are taken into account. 

In certain cases, a firm's activities can lead to a positive net cash, which has an adverse impact on enterprise stability. It includes financial facilities derived from a debt, or operations related to a lump-sum contribution.

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