Investor's wiki
en English
Navigation
Home Glossary
InvestingStocksBondsCryptoPersonal FinanceFundamental AnalysisTechnical AnalysisTradingBankingTaxes
Disclaimer Terms of Use Privacy Policy Cookie Policy
Navigation
Home Glossary
InvestingStocksBondsCryptoPersonal FinanceFundamental AnalysisTechnical AnalysisTradingBankingTaxes
Disclaimer Terms of Use Privacy Policy Cookie Policy

Cash Is King

Cash Is King
BusinessCorporate Finance and AccountingFinancial Statements

What Is Cash Is King?

"Cash is king" is a shoptalk term mirroring the conviction that money (cash) is more valuable than some other form of investment instruments, for example, stocks or bonds. This phrase is much of the time involved when prices in the securities market are high, and investors choose to set aside their money at when costs are less expensive.

It can likewise allude to the balance sheet or cash flow of a business; a ton of cash close by is regularly a positive sign, while strong cash flows allow a company greater flexibility concerning business choices and possible investments.

A third utilization of the phrase can allude just to a form of payment. Numerous businesses just acknowledge cash as a form of payment, rather than credit cards or checks, subsequently the phrase "cash is king."

Understanding Cash Is King

In the world of investments, investors who favor the "cash is king" phrase might opt to buy short-term debt instruments or certificates of deposit (CDs) versus buying high-valued securities. If utilizing a strategy of holding a great deal of cash, an investor ought to work with a financial planner to estimate future cash needs and rates of inflation.

Cash, cash equivalents, and some short-term debt instruments lose spending power over the long run in the event that they don't offer a return that stays aware of the rate of inflation. This can influence holders of cash as a long-term investment to experience a negative return over the long haul.

For instance, a dollar today is worth in excess of a dollar tomorrow, due to the time value of money. It is most shrewd to invest cash to where there is a return equivalent to or above inflation, rather than leaving it sitting idle.

Numerous businesses lean toward payment in cash as it decreases the hour of being paid from a credit card company, diminishes the risk of [bad credit](/terrible credit), and allows for the immediate utilization of the cash.

"Cash is king" likewise alludes to the ability of a corporation or a business to have sufficient cash close by to cover short-term operations, buy assets, like equipment and machinery, or gain different facilities. More businesses fail for lack of cash flow than for lack of profit.

A huge level of cash likewise allows businesses to climate economic downturns when individuals are in savings mode and demand for a business' products or service might be low or non-existent. The higher the level of cash, the more straightforward a business will actually want to pay its operating expenses and debt obligations even on the off chance that revenues are low.

Real World Examples

In recent years, since the global financial crisis, tech companies like Apple (AAPL) and Amazon (AMZN) have been hoarding cash on their balance sheets rather than spending it. In 2017, market disruptor Amazon made a very large cash outlay to purchase Whole Foods, sending panic through the staple industry and putting the stock of companies like Kroger into a brief spiral. Cash enabled Amazon to make that large purchase and disturb the markets.

Apple is likewise known for having a large amount of cash. Toward the finish of Q3, 2020, Apple had $193 billion in cash, which is a stunning number. With that amount of cash the company can essentially do anything; purchase different businesses, invest in research and development (R&D), grow stores, and remain above water with no issue during economic downturns. In any case, given the demand for Apple products, it is far-fetched it would see a huge drop in demand for its products even during a downturn.

Highlights

  • As a form of investment, it is important to not let cash sit idle yet rather to invest so that returns are essentially equivalent to inflation.
  • At the point when businesses just acknowledge payment in cash rather than credit cards or checks, the phrase "cash is king" is generally utilized.
  • "Cash is king" additionally alludes to when companies have large cash balances on their balance sheets allowing them greater flexibility in dealing with their business and their obligations.
  • Investors utilize a "cash is king" strategy when securities prices in the market are high and opt to set aside money at when costs become less expensive.
  • "Cash is king" is a phrase that alludes to the prevalence of cash over different assets or forms of payment.