Accounting Ratios

Restricted Cash/Equity (%)

In accounting, "cash" refers to the money held by a company in liquid form that can be spent or invested. Restricted cash is money that is reserved for a specific purpose and therefore not available for immediate or general business use.

We penalise companies that hold an unusually high level of restricted cash relative to their industry peers over concerns that this cash is being used as collateral for debt, including bank acceptance notes. Normally, only companies which are highly leveraged and considered a poor credit risk would be asked by the bank to set aside cash. For more information, please read our report, HIDDEN DEBT: And Manufactured Cash Flow (25 May 2016).

Interestingly, there is a far higher variety in the incidence of restricted cash by country than by sector. Certain sectors have a far higher level of restricted cash owing to the nature of their business. For example, real estate companies and hotels that hold customer deposits in advance of providing the service, as shown in Figure 61, generally have a higher level of incidence than other industries – although our findings suggest that it’s not that much higher. However, on a country basis, India, Hong Kong and Thailand have a far higher incidence of restricted cash in excess of 30% of all companies. This might suggest that country considerations are more important than industry ones. We’re not so sure that this is the case; it might simply be down to reporting standards. As such, our database compares against industry peers as opposed to country ones.


Our accounting screen is set to trigger a red flag when restricted cash/equity exceeds the 80th percentile relative to its GICS industry peers, and/or when there is an abnormally large increase relative to the normal rate of change amongst industry peers over one and three years. This latter red flag is triggered when the increase in restricted cash/equity exceeds the 80th percentile relative to the change experienced by GICS industry peers between 2010 and 2015.