DEFINITION of 'Cash Is King'

Cash is king is a slang term reflecting the belief that money (cash) is more valuable than any other form of investment tool. This phrase is typically used when prices in the securities market are high and investors decide to save their cash for when prices are cheaper. It can also refer to the balance sheet or cash flow of a business; a lot of cash on hand is normally a positive sign, while strong cash flow allows a company more flexibility in regards to business decisions and potential investments.

BREAKING DOWN 'Cash Is King'

In the world of investments, investors who favor the 'cash is king' phrase may opt to buy short-term debt instruments versus buying high-priced securities. If employing a strategy of holding a lot of cash, an investor should 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 time if they do not offer a return that keeps up with the rate of inflation. This can cause holders of cash as a long-term investment to experience a negative return over time.

The phrase also refers to the ability of a corporation or a business to have enough cash on hand to cover short-term operations, buy assets such as equipment and machinery or acquire other facilities. More businesses fail for lack of cash flow than for lack of profit.

In recent years since the global financial crisis, tech companies such as Apple and Amazon have been hoarding cash on their balance sheets as opposed to spending it. In 2017, market disruptor Amazon made an extremely large cash outlay to purchase Whole Foods, sending panic through the grocery industry and putting the stock of companies such as Kroger into a temporary tailspin. Cash gave Amazon the power to make that large purchase and disrupt the markets.

RELATED TERMS
  1. Cash Per Share

    Cash flow per share is the broadest measure of available cash ...
  2. Cash

    Cash is legal tender or coins that can be used to exchange goods, ...
  3. Cash Ratio

    The cash ratio is the ratio of a company's total cash and cash ...
  4. Operating Cash Flow Ratio

    The operating cash flow ratio is a measure of how well current ...
  5. Price to Free Cash Flow

    Price to free cash flow is an equity valuation metric used to ...
  6. Retained Cash Flow - RCP

    Retained cash flow includes remaining cash after expenses and ...
Related Articles
  1. Investing

    Corporate Cash Flow: Understanding the Essentials

    Tune out the accounting noise and see whether a company is generating the stuff it needs to sustain itself. Learn how to read the cash flow statement.
  2. Investing

    Fundamental Case Study: Is Amazon's Cash Flow Actually Solid? (AMZN)

    Review Amazon's cash flow situation, including its free cash flow yield, operating cash flow from organic growth and cash flow from debt financing.
  3. Investing

    Analyze cash flow the easy way

    Learn the key components of the cash flow statement, how to analyze and interpret changes in cash, and what improved free cash flow means to shareholders.
  4. Investing

    Cash: Can A Company Have Too Much?

    Cash is something companies love to have. But if they are not using it there could be problems.
  5. Investing

    Cash Flow From Investing

    Cash flow analysis is a critical process for both companies and investors. Find out what you need to know about it.
  6. Investing

    Cash Is King: The Only S&P 500 Sector With Net Cash (APPL, GOOGL)

    Explore the net cash positions of the largest companies in the technology sector, and discover why carrying large sums of net cash may be a thing of the past.
  7. Investing

    Free Cash Flow Yield: The Best Fundamental Indicator

    Cash in the bank is what every company strives to achieve. Find out how to determine how much a company is generating and keeping.
  8. Tech

    Cash Flow Is King: How to Keep it Running

    Why is cash flow so important, and what steps can a business take to improve it?
  9. Investing

    Cash Flow on Steroids: Why Companies Cheat

    Pressure to be the best can sometimes push corporations to cheat. Learn how they do it and how to spot it.
RELATED FAQS
  1. What's the difference between short-term investments in marketable securities and ...

    Most of the time, when an investor or analyst searches through the financial statements of a publicly traded company, he ... Read Answer >>
  2. What is the difference between cash flow and revenue?

    Understand the difference between cash flow and revenue as they relate to corporate accounting and the financial evaluation ... Read Answer >>
  3. How do net income and operating cash flow differ?

    Net income is the profit a company has earned for a period while cash flow from operating activities measures, in part, the ... Read Answer >>
  4. What's more important, cash flow or profits?

    Learn about the different effects of cash flow and profit have on a business and how you can use the information for your ... Read Answer >>
  5. How do the balance sheet and cash flow statement differ?

    The balance sheet and cash flow statement are financial statements that companies issue to report their financial performance ... Read Answer >>
Hot Definitions
  1. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  2. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  3. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  4. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  5. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
  6. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
Trading Center