what makes a financial instrument a cash equivalent 
financial instruments are defined as cash equivalents if they are highly liquid products that have active marketplaces are without liquidation restrictions and are easily convertible to cash a company should be able to sell or liquidate a cash equivalent immediately on demand without fear or material loss to the product cash equivalents are extremely low risk assets without meaningful price fluctuations the bottom linecash and cash equivalents are the most liquid current assets on a company s balance sheet the assortment of financial products that comprise the balance of this classification usually have maturities of 90 days or less are easily convertible to cash low risk and must not have restrictions that limit their liquidity companies often hold cash and cash equivalents to pay short term debt and hold capital in secure places for future use 