Cash is king
"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. In corporate finance, the expression refers to the fact that only future free cash flows or dividends are relevant for valuation (finance) 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 instruments available either due to falling financial markets or due to the availability of investment opportunities.
The phrase was a favorite of billionaire property developer Alex Spanos, has sometimes appeared in articles on the investing website Motley Fool, and is part of radio host Dave Ramsey's hourly show introduction. 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 receivables 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 wages to workers for labor. Unless it was able to convert its accounts receivable and other current assets 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 Pehr 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.