What is Cash Positioning?

Does your business bring in steady revenue, yet you're still scrambling to cover bills? It’s a common challenge. Many companies stay profitable on paper but struggle to manage day-to-day payments, and the issue often comes down to timing and access, not a lack of money.

Tracking income and expenses isn’t enough. What really matters is how you control your cash flow behind the scenes. 

The smartest businesses know how to stay agile, prepared, and financially steady without borrowing more or slashing budgets. It’s not just about how much cash you have—it’s about where it is and how quickly you can move it.

So, how clear is your business’s cash positioning right now?

Understanding Cash Position

Cash position refers to the amount of liquid assets a business has at a specific moment. This includes physical cash and assets that can be quickly turned into cash, such as certificates of deposit or marketable securities. 

It answers the question: “If your business needed to make large payments right now, how much could it afford to pay?”

Why Cash Position Matters

Cash position shows how much liquidity your business has compared to its short-term liabilities. When combined with daily cash flow tracking, it helps you understand how much you can safely spend on growth while still covering financial obligations. This gives you flexibility to handle emergencies or take advantage of short-term opportunities.

It also helps you manage cash more effectively. To determine your cash position, you need to review all company bank accounts. This lets treasury teams ensure each account has the right balance, avoid overdraft fees, and identify excess funds that could be redirected toward growth.

The ending cash equation also plays an important role in assessing your position, as it reflects the cash left after all inflows and outflows are accounted for.

Overall, cash positioning is a vital measure of financial health. Investors and banks often look at it when making funding decisions. A strong position can significantly boost your credibility and access to capital.

Is It Possible to Have Too Much Cash?

Cash is a safe asset, which makes it a good backup during uncertain times. However, holding too much of it can be a problem. Unlike investments like mutual funds or marketing campaigns, cash doesn’t generate returns. Inflation can reduce its value over time.

This issue is known as idle cash. It’s money that could be used more effectively in smart investments. Too much idle cash can also make a company look inactive or unwilling to grow, which can be a negative signal to potential investors.

So, here’s an important point: having a strong cash position doesn’t mean keeping large amounts of unused cash. It means finding the right balance—having enough to cover short-term needs and stay flexible, while also investing enough to support growth.

How to Calculate Your Current Cash Position

Finding your cash position means subtracting your outflows (money going out) from your inflows (money coming in). While this sounds simple, it can take time to do correctly.

Cash Position Formula:

• Cash Position = Previous Cash Balance + (Total Inflows – Total Outflows)

Where to Start:

• Use the latest figure from your quarterly cash flow statement as your base.

Adjust for Time Passed:

• If a month has passed since the last report, gather data from the last 30 days (60 days for two months, etc.).

Data Collection Tips:

• Download .CSV files from all company bank accounts.

• Combine and review the data in Excel for accuracy.

Daily Cash Position Tracking:

• For greater accuracy, update your cash position daily.

• Use the previous day’s position as the base and adjust using that day’s inflows and outflows.

Manual Tracking Challenges:

• This process can be time-consuming and prone to errors without automation.

Go Beyond the Balance:

• Knowing your cash position is only part of the picture.

• Use liquidity ratios to compare them with your liabilities and assess your financial stability.

Liquidity Ratios

Liquidity ratios help you understand how well your business can meet short-term obligations. These ratios compare your current assets—like cash and receivables—to your current liabilities.

There are two commonly used liquidity ratios:

Current Ratio

The current ratio includes all assets that can be turned into cash within one year. This gives a broader view of your liquidity.

Formula: Current Ratio = (Cash + Cash Equivalents + Accounts Receivable + Inventory) / Current Liabilities

Quick Ratio

The quick ratio is more conservative. It only includes assets that can be converted into cash within 90 days. Inventory is not included in this calculation.

Formula: Quick Ratio = (Cash + Cash Equivalents + Accounts Receivable) / Current Liabilities

Use the quick ratio when you want a more cautious view of your liquidity position.

What’s Considered a Good Ratio?

• A current ratio between 1.5 and 2.5 is typically healthy. For example, a ratio of 2 means you have twice as many liquid assets as you do liabilities.

• A result over 2.5 may indicate excess idle cash that isn’t being put to productive use.

• For the quick ratio, a result of 1 or slightly higher is ideal.

• Any ratio below 1 means your liabilities exceed your liquid assets. This could signal financial risk and the need to raise funds, reduce expenses, or increase income.

Other Useful Metrics to Understand Your Cash Position

Liquidity ratios like the current ratio and quick ratio offer helpful insights into your business’s short-term financial health, but they don’t tell the full story. 

To get a more complete picture of your company’s cash flow and ability to operate efficiently, there are several other key metrics worth tracking. Each of these focuses on different aspects of cash movement and resource availability.

Working Capital

Working capital measures how much short-term liquidity you have after covering your current liabilities. In other words, it tells you how much cash and other short-term resources are left over to support your business operations or future investments.

A positive working capital means you have enough assets to meet short-term obligations and still have money to grow or invest in the business. A negative number could suggest financial trouble or liquidity issues.

Formula: Working Capital = Current Assets – Current Liabilities

Operating Cash Flow (OCF)

Operating cash flow shows how much cash your business generates from its normal operations, before taking into account investment or financing activities. It reflects your company’s ability to generate cash from the products or services it provides.

A strong OCF shows your core business is healthy and generating enough cash to sustain itself. This is especially important during periods of growth or downturns.

Formula: Operating Cash Flow = (Net Income + Depreciation and Amortization) – Changes in Net Working Capital

Note: You can find changes in net working capital on your balance sheet. It refers to the difference between current assets and current liabilities over time.

Free Cash Flow (FCF)

Free cash flow takes your operating cash flow a step further by subtracting capital expenditures—money used to buy or maintain equipment, property, and other long-term assets. It shows how much cash your business has left after covering its operating and investment needs.

FCF is a strong indicator of financial flexibility. Positive FCF means your business can reinvest, pay off debt, or distribute profits to stakeholders.

Formula: Free Cash Flow = Operating Cash Flow – Capital Expenditures

Days Sales Outstanding (DSO)

DSO tells you how long it typically takes for your business to collect payment from customers after a sale is made. It’s an important measure of how quickly you can turn sales into actual cash in the bank.

A lower DSO means your customers are paying promptly, which improves cash flow. A higher DSO can point to collection issues and delayed cash inflows.

Formula: DSO = (Accounts Receivable / Net Credit Sales) × Number of Days

Example: For yearly DSO, multiply by 365. For quarterly DSO, use 90.

Days Payable Outstanding (DPO)

DPO shows the average number of days your business takes to pay its suppliers and vendors.

A higher DPO can help preserve cash in the short term, but delaying payments too long can hurt supplier relationships. A lower DPO may indicate that you’re paying bills quickly, but it could also mean you’re not fully utilizing credit terms.

Formula: DPO = (Accounts Payable × Number of Days) / Cost of Goods Sold

To calculate Cost of Goods Sold (COGS): COGS = Beginning Inventory + Purchases – Ending Inventory

Cash Conversion Cycle (CCC)

The cash conversion cycle ties together several of the above metrics to show how long it takes your business to convert investments in inventory and other resources into actual cash. It combines Days Inventory Outstanding (DIO), DSO, and DPO.

• DIO (Days Inventory Outstanding) tracks how long your inventory sits before being sold.

• DSO measures how long it takes to collect on sales.

• DPO reflects how long you take to pay suppliers.

A shorter CCC means your business turns resources into cash faster—an important sign of efficiency and liquidity.

Formula:  CCC = DIO + DSO – DPO

A shorter cycle improves liquidity and reduces the need for external financing.

Don’t Let Your Cash Sleep on the Job

Money in motion fuels your business—cash just sitting still does nothing but lose value. If you're only checking balances and calling it a day, you're missing the full picture. Cash positioning isn't about hoarding piles of money. It's about knowing exactly where your cash is, how fast it moves, and how well it works for you.

Are your dollars pulling their weight—or lounging around?

The smartest companies track daily cash flow, use the ending cash equation, and tighten their conversion cycles. It’s time to think sharper and act faster. Use your numbers as a steering wheel, not a rearview mirror. Get ahead, not just afloat.

Make your cash hustle—or risk falling behind.