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.