Trapped Cash
Short definition
Trapped cash is cash the group or parent cannot freely use for dividends, debt service or investment. It arises from law, tax, FX, collateral or shareholder restrictions — and still sits in the cash line.
Detailed explanation
Sources: dividend blockers, minority consents, transfer-pricing and withholding, capital controls, DSRA / collateral accounts, L/C cash covers, customer escrow. Notional pooling does not make it usable.
In M&A and valuation, trapped cash is not deducted in EV, or is deducted at a discount; otherwise the buyer pays for cash it cannot extract.
Why it matters for the CFO
Group headroom inflates with trapped cash. Parent debt cannot be paid with a subsidiary’s trapped balance. The CFO cannot plan dividends or debt without a legal-entity cash map.
How to read it
Total cash 120, trapped 40 → free cash 80 — then subtract the floor and buffer. FX risk sits in the currency of the trapped balance.
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Definitions are educational. They are not investment, credit or tax advice.