What it means
The phrase comes from the older English idea of the pink of health, where pink stands for the best or highest state of something. In the business pages, a company described as in the pink is making money, paying its bills and holding enough cash to cope with surprises.
It is the opposite of being in the red, which means making a loss. Because it is informal, there is no single test that defines it.
Analysts look at several signs together, such as steady revenue growth, positive operating profit, strong cash flow and a comfortable level of borrowing. A company that shows all of these can fairly be called in the pink.
Managers should be careful with the phrase in formal documents. Loan applications, board papers and financial statements need precise figures, not colourful language.
Using specific measures such as the current ratio and the debt to equity ratio gives readers something they can check. One more point to watch is that the phrase should not be confused with pink sheets, the old name for a market where smaller and less closely regulated companies trade.
A share quoted on that market is not in the pink in the sense described here. The two uses are unrelated, and the context will usually make the meaning clear.
For a non-finance professional, the practical use is as a quick health check. If someone says a supplier or customer is in the pink, ask for evidence: recent profit, cash in the bank and the level of debt.
The answers will show whether the description is justified. Journalists and commentators use the phrase for people and places as well as companies.
A town in the pink may have low unemployment and rising house prices, and a household in the pink has savings, steady income and little debt. In every case, the phrase is shorthand for good health that can be backed with numbers.
In practice
Real-world examples.
Example
A newspaper business column reports that a local bakery chain is in the pink after a year of rising sales and no new borrowing. The article backs this up with figures showing a profit margin that has risen for three years. Readers can see why the chain is described this way. The reporter also mentions that the owners have kept some cash back for a rainy day.
Example
A manager considering a long contract with a supplier is told it is in the pink. She asks for the last two sets of accounts and checks that the supplier has cash, low debt and rising profit. Only then does she sign. She also sets a date to review the supplier's accounts again after twelve months.
Example
An investor describes a favourite stock as in the pink because earnings have beaten forecasts for eight quarters. He still checks the share price against earnings before buying more. A good company can still be a poor investment if the price already assumes perfection.
Case study
Seen in the real world.
Greenfield Logistics is a fictional delivery company that spent three difficult years repaying loans taken out during a rapid expansion. By the end of the period its debt had fallen from $6,000,000 to $2,000,000 and its cash balance had grown to $1,500,000.
In the same year, profit rose to $900,000 on revenue of $12,000,000, a margin of 7.5%. A local business magazine wrote that the firm was back in the pink, and several banks offered new credit lines. The company had not asked for any of them.
In this illustrative case, the finance director used the article as a prompt rather than a conclusion. She presented the underlying numbers to the board, and the company decided to invest in two new vehicles using its own cash instead of borrowing more. The board also agreed to keep a cash reserve equal to three months of running costs.
Watch out
Common mistakes.
- Treating the phrase as a precise financial rating, when it is a loose description with no fixed test.
- Confusing it with the pink sheets market, which is a different use of the word.
- Accepting that a business is in the pink without checking its accounts, cash and debt levels, or how much of the strength comes from a single large customer.
Questions
People also ask.
Where does the phrase come from?
It comes from an older English expression, the pink of health, meaning the best condition of something, and was later applied to money matters.
What is the opposite?
Being in the red, meaning losing money, is the common opposite, and the phrase comes from the old habit of writing losses in red ink.
Is it used in formal accounts?
No. Financial statements use measured figures and defined terms rather than informal expressions, so the phrase belongs in conversation and in newspaper columns.
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