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Cash capital is the net worth of all cash that can be derived from investments in a portfolio. It is calculated by subtracting credits from debits and can be used to monitor the overall strength of the portfolio and individual assets. It can also be applied to evaluate the financial health of a company before investing.
Cash capital is about understanding the current state of an investment portfolio. Essentially, it is the net worth of all the cash that could be derived from the investments and securities that are included in the portfolio. Monitoring cash capital is a great way to make sure your current investment mix is working, as well as a good strategy for determining what to hold and what to sell.
Calculating cash capital is a simple process. First, compile a list of all the debits associated with the financial portfolio. Once this list is complete, make a second list that notes each credit that is currently associated with something in the portfolio. Subtracting the credits from the debits will result in determining the overall cash principal of the current set of investments.
Along with using this formula to monitor overall portfolio cash capital, the same approach can be applied to individual assets within the current list of events. By considering each asset and evaluating the relationship between the corresponding credits and debits, it is possible to decide if keeping the asset is a good idea, or if it is time to sell. This approach will help keep the overall strength of the investment portfolio as healthy as possible.
It is important to realize that almost any set of investments will have a mix of active debits and credits at any given time. The new investor should not be alarmed by the presence of debits. However, if the equity indicates that there are more debits involved with current investments than credits, obviously some changes are in order.
Cash capital can also be applied in other financial strategies. For example, the basic formula for calculating it also lends itself well to looking at the financial health of a company before choosing to invest in the corporation. If the corporation does not maintain a healthy relationship between debits and credits between investments, then choosing to invest resources in the company is probably not a good idea.
Smart Asset.
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