"Cash is king" is a

colloquial Colloquialism (), also called colloquial language, everyday language or general parlance, is the style (sociolinguistics), linguistic style used for casual (informal) communication. It is the most common functional style of speech, the idiom norm ...

phrase 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. In corporate finance, the expression refers to the fact that only future free cash flows or

dividend A dividend is a distribution of profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a portion of the profit as a dividend to shareholders. Any amount not distributed is taken to be re-i ...

s are relevant for

valuation (finance) In finance, valuation is the process of determining the present value (PV) of an asset. In a business context, it is often the hypothetical price that a third party would pay for a given asset. Valuations can be done on assets (for example, inv ...

and not, for example, accounting earnings. For investors it may also describe times when it is advantageous to have a large percentage of cash or

short-term debt The money market is a component of the economy that provides short-term funds. The money market deals in short-term loans, generally for a period of a year or less. As short-term securities became a commodity, the money market became a compo ...

instruments available either due to falling financial markets or due to the availability of investment opportunities. The concept of "cash is king" 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, abbreviated as AR or A/R, are legally enforceable claims for payment held by a business for goods supplied or services rendered that customers have ordered but not paid for. These are generally in the form of invoices raised ...

s on its

balance sheet In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a Partnersh ...

which would also increase equity, but the company could still be short on

cash In economics, cash is money in the physical form of currency, such as banknotes and coins. In bookkeeping and financial accounting, cash is current assets comprising currency or currency equivalents that can be accessed immediately or near-im ...

with which it can make purchases, including paying

wage A wage is payment made by an employer to an employee for work done in a specific period of time. Some examples of wage payments include compensatory payments such as ''minimum wage'', '' prevailing wage'', and ''yearly bonuses,'' and remune ...

s to workers for

labor Labour or labor may refer to: * Childbirth, the delivery of a baby * Labour (human activity), or work ** Manual labour, physical work ** Wage labour, a socioeconomic relationship between a worker and an employer ** Organized labour and the la ...

. Unless it was able to convert its

and other current assets to cash quickly, it could fail and be technically

bankrupt Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor ...

despite a positive net worth.

History

The origin of "cash is king" is unclear. The phrase became popularized following the global stock market crash of 1987 by Pehr G. Gyllenhammar, then CEO of Swedish car group

Volvo The Volvo Group ( sv, Volvokoncernen; legally Aktiebolaget Volvo, shortened to AB Volvo, stylized as VOLVO) is a Swedish multinational manufacturing corporation headquartered in Gothenburg. While its core activity is the production, distributio ...

. Since 2000, the expression, "cash is king", has occasionally appeared in articles on the investing website ''

Motley Fool The Motley Fool is a private financial and investing advice company based in Alexandria, Virginia. It was founded in July 1993 by co-chairmen and brothers David Gardner and Tom Gardner, and Erik Rydholm, who has since left the company. The compa ...

'', and is part of radio host

Dave Ramsey David Lawrence Ramsey III (born September 3, 1960) is an American personal finance personality, radio show host, author, and businessman. An evangelical Christian, he hosts the nationally syndicated radio program ''The Ramsey Show''. Ramsey has ...

's hourly show introduction The phrase was frequently used by billionaire property developer Alex Spanos, whose 2002 book, ''Sharing the Wealth: My Story'', includes the phrase, used as a chapter title, and later adopted by another NFL team owner of Greek heritage,

Jack Welch John Francis Welch Jr. (November 19, 1935 – March 1, 2020) was an American business executive, chemical engineer, and writer. He was Chairman and CEO of General Electric (GE) between 1981 and 2001. When Welch retired from GE, he receive ...

. Widely used during the global

financial crisis of 2007–2008 Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fi ...

and the

Great Recession The Great Recession was a period of marked general decline, i.e. a recession, observed in national economies globally that occurred from late 2007 into 2009. The scale and timing of the recession varied from country to country (see map). At ...

that followed, the phrase was also often used to describe companies which could avoid share issues or bankruptcy. Commercial establishments that accept only cash payments have become suspect in the modern age. '' Gothamist'' co-founder and publisher

Jake Dobkin Jacob "Jake" Dobkin is an American journalist, blogger, author, and co-founder of Gothamist. He is currently a director of New York Public Radio. Biography Dobkin is a native of New York City and grew up in Park Slope, Brooklyn. He graduated fr ...

wrote in 2014 about cash-only restaurants: "I figured that they must be running a tax scam, underreporting their sales to the state and pocketing the difference—maybe even laundering money". The phrase is often used by convicted

jewel thief ''Jewel Thief'' is a 1967 Indian Hindi-language spy thriller heist film directed by Vijay Anand. The film stars Ashok Kumar, Dev Anand, Vyjayantimala and features four bond girl-like actresses portrayed by Tanuja, Helen, Faryal and Anju Mahen ...

Larry Lawton Lawrence Robert Lawton (born October 3, 1961) is an American ex-convict, author, paralegal, motivational speaker, and YouTuber. Lawton gained notoriety for committing a string of jewelry store robberies along the Atlantic Seaboard prior to hi ...

, although in a different context to mean it is best to rob cash as you don't have to sell it to a

fence A fence is a structure that encloses an area, typically outdoors, and is usually constructed from posts that are connected by boards, wire, rails or netting. A fence differs from a wall in not having a solid foundation along its whole length. ...

, potentially making the criminal process riskier. This phrase appears on his merchandise.

References

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External links

Cash is King Again
– Motley Fool article describing the advantages of having cash available to invest.

Corporate finance Working capital management Cash