Restricted cash
Valuation & CompsCash the company is not free to spend, which therefore cannot be netted against debt in the bridge.
Also written: trapped cash
Restricted cash is money the company holds but cannot deploy: a deposit pledged as collateral, sums held in escrow against a disputed claim, a minimum balance a regulated or licensed subsidiary must maintain, or cash sitting in a jurisdiction it cannot leave without cost.
It matters because netting cash against debt asserts that the cash could repay the debt. Restricted cash cannot, so including it in the netting overstates the value reaching shareholders and understates enterprise value. In a transaction the effect is immediate: a buyer will not pay for cash it cannot take out.
Finding it takes a note rather than the face of the accounts. IFRS requires disclosure of restrictions on cash and cash equivalents, and the usual signals are a legal dispute, a regulated subsidiary, a secured facility, or a large balance held in a country with exchange controls.
It is distinct from minimum operating cash, which nobody has legally restricted. Restricted cash is a fact about the contract. Operating cash is a judgement about the business, and the two should not be argued in the same sentence.
Worked example
A group reports cash of 200, of which 30 is a customs guarantee deposit lodged with an authority and unavailable while the guarantee remains in force.
Only 170 is netted against debt. Netting the full 200 would understate enterprise value by 30 and overstate the equity available to shareholders by the same amount.
If the group's EBITDA is 200, that single line is 0.15 turns of the multiple.