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Cash capital involves understanding the current state of an investment portfolio. Essentially, it is the net worth of all the money that could be derived from the investments and securities included in the portfolio. Monitoring 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 net worth 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 any item in the wallet. Subtracting the credits from the debits will result in determining the total equity of the current set of investments.
In addition to using this formula to monitor total portfolio equity, 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 applicable credits and debits, you can decide if holding the asset is a good idea or if it’s time to sell it. This approach will help keep the overall strength of the investment portfolio as healthy as possible.
It is important to realize that virtually 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 debts. However, if equity indicates that there is more debt involved with current investments than credit, then some changes are obviously needed.
Cash capital can also be applied to other financial strategies. For example, the basic formula for calculating it also lends itself well to examining a company’s financial health before deciding to invest in the corporation. If the corporation does not maintain a healthy ratio of debits and credits between investments, then choosing to invest resources in the company is probably not a good idea.