Which is the more important financial statement, the income or balance sheet? The correct answer is none of the above, it is in fact the cash flow statement.

Which is the more important financial statement, the income or balance sheet? The correct answer is none of the above, it is in fact the cash flow statement.

All business must eventually produce more cash than it consumes. The failure to do so vaporized discount retailer W. T. Grant in the 1970s. Then accountants constructed a ‘sources and uses’ statement. This computed the changes in current assets and liabilities. Unaware that Grant was about to do a vanishing act, the accounting community created today’s cash flow statement. It demonstrates how cash is generated or consumed in three categories of operations, investing, and financing. The term ‘burn rate’ was coined in during the dot.com boom/bust. A company’s burn rate equaled its cash hand divided by its monthly net consumption of cash. That produced the number of months the company would exist.

Later examples include Chrysler and GM in 2008 and lately Tesla. Tesla has been on life support via government subsidies to electric car buyers, as well as stock and bond sales. But Tesla continues to burn through cash, consuming more than it produces.

Which brings us to the shale firms. Oil prices are now at a 3.5 year high at just over $70 for WTIC. But industry wide, shale producers have spent $1.13 for every dollar of cash generated.

Parsley Energy spent near $2 for every dollar it created. Continental Resources on the other hand generated $258 million more cash than it spent in the first quarter.

As more oil is produced by fracking the net cost of exploration increases even faster. Now it takes500 tons of steel pipe, 35 Olympic swim pools of water, and railroad cars stretching 1,400 yards in length filled with sand. Recall a mile is 1,860 yards.

Last week I was concerned that dollar strength would put a lid on metals and energy prices. Sure enough, gold dropped below $1,300. Energy is apparently in a different cycle as it held around $71 for the week. With summer driving season approaching, unleaded gasoline set a new high for the move at $2.24. Three dollars this summer is now a common prediction. The dollar advanced through the week to close at a new high of 93.38.

I suspect the dollar is peaking. Metals are likely making a low. Miner share prices have remained steady supporting that view.

For now, enjoy the pomp and circumstance of Royal Wedding weekend. Prince Harry has always been more fun than older William. Bride Ms. Markle is mixed race, divorced, and American. Welcome to the real New England.

Dennis Elam is a professor at Texas A&M University in San Antonio and may be contacted at dennislelam@gmail.com.