The amount of cash on a company’s balance sheet consists of its physical currency, bank account balances and checks from customers that it has yet to deposit. The amount of total assets is the amount of its total resources that it uses in its business. You can measure cash as a percentage of total assets to determine the relative amount of cash the company holds. This calculation is called common-size analysis, which compares the amount of a balance sheet account to total assets. Common-size analysis makes it easier to compare cash balances over time and between companies.
Find the amount of a company’s cash, listed in the “Current Assets” section of its balance sheet. You can find a public company’s balance sheet in its 10-Q quarterly reports or in its 10-K annual reports. You can obtain these reports from the investor relations section of a company’s website, or from the United States Securities and Exchange Commission’s EDGAR online database (see Resource). For example, assume a company’s balance sheet shows $100,000 in cash.
Identify the amount of the company’s total assets, listed on its balance sheet. In this example, assume the company has $500,000 in total assets.
Divide the amount of cash by the amount of total assets to calculate cash as a portion of total assets. In this example, divide $100,000 in cash by $500,000 in total assets to get 0.2.
Multiply your result by 100 to convert it to a percentage. In this example, multiply 0.2 by 100 to get 20 percent. This means the company has cash that is equal to 20 percent of its total assets.
Compare a company’s cash as a percentage of total assets with those of its competitors. A company with a larger percentage of cash has more financial flexibility than its peers.
Monitor a company’s cash as a percentage of total assets over time. A significant decrease may signal future financial trouble, while a significant increase suggests the company is strengthening its financial position.