A market meltdown puts one of the stocks on your wish list into your “thumbs-up” range. An investment property you’ve been eyeing suddenly becomes available. Let’s face it-life happens, and a cash cushion can give you that needed breathing room while you reassess. Junior breaks a bone and needs to go to the ER. Most financial planning pros recommend keeping at least some of your holdings in cash-for two very good reasons:Įmergencies. Think about cash the way you think about your household finances. Some analysts claim that cash flow trumps dividend yields, earnings surprises, technical indicators, and even the venerable P/E ratio. If you follow the earnings reports that public companies release each quarter, you might get the idea that earnings, earnings growth, and the price/earnings (P/E) ratio are the royalty among fundamental indicators.Īnd yet there’s that old saying: Cash is king.Īlthough the quarterly earnings-per-share data grab most of the headlines each quarter, many analysts consider cash flow-a company’s cash inflows and outflows in a given period-to be the foundation of its financial health and a critical tool for deciding whether a stock might be worth a look. A deteriorating cash position in a company might be a red flag for investors.Cash flow is seen by many as a truer picture of a company’s status than earnings and revenue.Companies hold cash for the same reasons households do: emergency and opportunity.
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