Cash

In everyday speech, cash means physical notes and coins. In finance and accounting, the word is broader. It usually includes money in current and savings accounts that can be used straight away, and is often combined with cash equivalents, which are very safe, short-term investments that can be turned into cash within about three months.

Cash is the most liquid asset: it can be used immediately without needing to be sold first. That makes it essential for paying bills, handling emergencies and taking advantage of opportunities.

The drawback is that cash earns little or no return, and inflation slowly reduces what it can buy. If prices rise by 3% a year and your cash earns nothing, 10,000 will buy roughly what 9,700 buys today after one year.

For businesses, cash is critical. A company can be profitable on paper and still fail if it runs out of cash to pay wages, suppliers or lenders. This is why investors watch cash flow, not just profit.