Cash Is The King

Cash is the king is term or belief that money (cash in hand / bank) is most valuable or more valuable than any other form of investment instrument. The "cash is the king" statement is typically used when prices in the capital market are high and investors decide to save their cash for when prices are cheaper. It can also refer to the statement of financial position or statement of cash flow of a business; a lot of cash onhand is normally a positive sign, while strong cash flow allows a company more flexibility in regards to business decisions and potential investments.

Financial Reports consist of 4 items, such as statement of comprehensive income, statement of financial position, statement of change in equity, and statement of cash flow. In old term statement of comprehensive income also refer as income statement, and balance sheet for statement of financial position. In business, many investors always look at the statement of cash flow instead of statement of comprehensive income to determine are they will invest in that business or not.

Statement of cash flow shows the availability of cash in hand or bank in a business, while statement of comprehensive income shows profit or loss of the entity. It’s not impossible for a company, entity, or any other business to have a lot of cash flows while their business’s statement of comprehensive income shows minus account (loss). If the entity has a lot of cash flow, entity doesn’t find it hard to finance their business in the next period or if their cash flow is enough, maybe they don’t even need to find any other resources to finance their business.

Importance of the free cash flow shows you that cash is the king. You will always hold cash to finance something. If you don’t, you will find other resources such as debt to finance your needs. The more sufficiently your cash flow is, the less necessary your need for the debt.