Definition:

Cash & Due from Banks refers to the sum of a bank's physical currency holdings (cash) and the amounts that are due from other banks, such as checks or drafts that are in the process of collection. This is a key component of a bank's liquid assets and is often reported on the balance sheet.

Examples

Examples of Cash & Due from Banks include the cash reserves held in a bank's vault, deposits held at other financial institutions, and checks that have been deposited but not yet cleared.

Formula:

There is no specific formula for Cash & Due from Banks, as it is a line item on the balance sheet. It is typically calculated as:

Cash & Due from Banks = Cash on Hand + Due from Banks

How to use the metric:

This metric is used to assess a bank's liquidity position. A higher amount indicates a strong liquidity position, which means the bank can easily meet its short-term obligations. It is crucial for ensuring that the bank can handle withdrawals and other immediate financial needs.

Limitations:

One limitation of this metric is that it does not provide insight into the quality of the bank's assets or its overall financial health. It only reflects the liquidity aspect. Additionally, it may not account for the timing of cash flows, which can affect the bank's ability to meet obligations.

Applies to:

This metric is most relevant to the banking and financial services industry, where liquidity management is critical for operations and regulatory compliance.

Doesn't apply to:

Cash & Due from Banks is not as applicable to non-financial industries, such as manufacturing or retail, because these industries do not typically deal with interbank transactions or require the same level of liquidity management.

Summary:

Cash & Due from Banks is a key liquidity metric for banks, representing the sum of cash reserves and amounts due from other banks. It is crucial for assessing a bank's ability to meet short-term obligations but does not provide a complete picture of financial health. This metric is primarily relevant to the banking industry and less applicable to non-financial sectors.