Technical - What Does 'Cash is King' Mean
- 01:42
Investment Banking Superday interview technical question - What Does 'Cash is King' Mean?
Downloads
No associated resources to download.
Transcript
Bankers often say cash is king.
What, what do you think, have you heard about it? Do you have any o opinion about it? please tell me.
Sure. Yeah, I mean, I definitely agree with that statement. Cash is key. Like you need cash to invest in the business.
You need cash to pay back your expenses, pay back interest on your debt, like you need at, at the end of the day, the objective of a business for the most part is to generate free cash flow.
So I think that is very important.
And you could have a business that looks incredible in terms of their revenues and that sort of thing, but if they're, they're not bringing in cash, then they may not be able to function for much longer.
So it is quite important, especially with like an accrual based accounting system where you can record revenues before you even get the cash.
So it'll be held within like accounts receivables and you can't really use, I mean, you can use your accounts receivables maybe to, to take on debt, but that's ultimately to get cash to then pay your expenses.
So the cash just sort of facilitates the whole operations of most businesses.
So it's, it's very important.
Yeah, absolutely. I mean, as a matter of fact, I'm asking because I've seen, I've been on the litigation case of one company where the equity research analyst had it on a strong buy, yet the company went bankrupt because it just didn't get any cash yet.
Yes. So, I mean, that's, that's the extreme.
And luckily it doesn't happen too often, but it can happen.
So again, well done. Spot on.