Cash is king
Encyclopedia
"Cash is king" is an expression sometimes used in analyzing businesses or investment portfolios. It may refer to the importance of cash flow
in the overall fiscal health of a business
. For investors it may also describe times when it is advantageous to have a large percentage of cash or short-term debt
instruments available either due to falling financial markets or due to the availability of investment opportunities.
The phrase is a favorite of Alex Spanos
and has sometimes appeared in Motley Fool
articles and commentaries. It describes the importance of sufficient cash as an asset in the business for short term operations, purchases and acquisitions. A company could have a large amount of accounts receivable
s on its balance sheet
which would also increase equity, but the company could still be short on cash
with which to make purchases, including paying wage
s to workers for labor. Unless it was able to convert its accounts receivable
and other current asset
s to cash quickly, it could fail and be technically bankrupt
despite a positive net worth.
The origin of ”cash is king” is not clear. It was used in 1988, after the global stock market crash in 1987, by Per G Gyllenhammar, who at the time was Chief Executive Officer of Swedish car group Volvo.
The phrase was widely used during the global financial crisis, which started in the fall of 2008. In the recession which followed the financial crisis, the phrase was often used to describe companies which could avoid share issues or bankruptcy. ”Cash is king” is relevant also to households, i.e. to avoid foreclosures.
Cash flow
Cash flow is the movement of money into or out of a business, project, or financial product. It is usually measured during a specified, finite period of time. Measurement of cash flow can be used for calculating other parameters that give information on a company's value and situation.Cash flow...
in the overall fiscal health of a business
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...
. For investors it may also describe times when it is advantageous to have a large percentage of cash or short-term debt
Money market
The money market is a component of the financial markets for assets involved in short-term borrowing and lending with original maturities of one year or shorter time frames. Trading in the money markets involves Treasury bills, commercial paper, bankers' acceptances, certificates of deposit,...
instruments available either due to falling financial markets or due to the availability of investment opportunities.
The phrase is a favorite of Alex Spanos
Alex Spanos
Alexander Gus Spanos is an American real estate developer and self-made billionaire of Greek origin who founded the A. G. Spanos Companies and owns the San Diego Chargers.-Early life:...
and has sometimes appeared in Motley Fool
Motley Fool
The Motley Fool is a multimedia financial-services company that provides financial solutions for investors through various stock, investing, and personal finance products. The Alexandria, Virginia-based private company was founded in July 1993 by co-chairmen and brothers David and Tom Gardner, and...
articles and commentaries. It describes the importance of sufficient cash as an asset in the business for short term operations, purchases and acquisitions. A company could have a large amount of accounts receivable
Accounts receivable
Accounts receivable also known as Debtors, is money owed to a business by its clients and shown on its Balance Sheet as an asset...
s on its balance sheet
Balance sheet
In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A...
which would also increase equity, but the company could still be short on cash
Money
Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past,...
with which to make purchases, including paying wage
Wage
A wage is a compensation, usually financial, received by workers in exchange for their labor.Compensation in terms of wages is given to workers and compensation in terms of salary is given to employees...
s to workers for labor. Unless it was able to convert its accounts receivable
Accounts receivable
Accounts receivable also known as Debtors, is money owed to a business by its clients and shown on its Balance Sheet as an asset...
and other current asset
Current asset
In accounting, a current asset is an asset on the balance sheet which can either be converted to cash or used to pay current liabilities within 12 months...
s to cash quickly, it could fail and be technically bankrupt
Business failure
Business failure refers to a company ceasing operations following its inability to make a profit or to bring in enough revenue to cover its expenses...
despite a positive net worth.
The origin of ”cash is king” is not clear. It was used in 1988, after the global stock market crash in 1987, by Per G Gyllenhammar, who at the time was Chief Executive Officer of Swedish car group Volvo.
The phrase was widely used during the global financial crisis, which started in the fall of 2008. In the recession which followed the financial crisis, the phrase was often used to describe companies which could avoid share issues or bankruptcy. ”Cash is king” is relevant also to households, i.e. to avoid foreclosures.
External links
- Fool on the Hill — Cash is King - Motley Fool opinion article stressing the importance of examining cash flow statementCash flow statementIn financial accounting, a cash flow statement, also known as statement of cash flows or funds flow statement, is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing...
s. - Cash is King Again - Motley Fool article describing the advantages of having cash available to invest.
- Cash is king in a recession!