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Ratios: Cash to Monthly Cash Expenses quiz

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  • What does the cash to monthly cash expenses ratio measure?
    It measures how many months a company can continue operating using only its current cash balance if no new cash inflows are received.
  • In which industry is the cash to monthly cash expenses ratio particularly relevant?
    It is particularly relevant in the healthcare industry, where much revenue comes from government payments like Medicare or Medicaid.
  • How do you calculate the cash to monthly cash expenses ratio?
    Divide the year-end cash balance by the monthly cash expenses to get the number of months the company can operate.
  • Where can you find the information needed to calculate monthly cash expenses?
    You can find cash outflows for monthly expenses in the operating activities section of the statement of cash flows.
  • What does the operating section of the statement of cash flows show?
    It shows the cash spent and received from the company's core business operations.
  • What are the three sections of the statement of cash flows?
    The three sections are operating activities, investing activities, and financing activities.
  • What does the investing section of the statement of cash flows deal with?
    It deals with buying and selling fixed assets and other long-term investments.
  • What does the financing section of the statement of cash flows include?
    It includes transactions with banks, debt holders, and equity holders such as stockholders.
  • What is another term for monthly cash expenses in this context?
    Monthly cash expenses are also referred to as the cash burn.
  • If the statement of cash flows shows annual cash outflows, how do you find monthly cash expenses?
    Divide the annual cash outflows from operating activities by 12 to get the monthly cash expenses.
  • Why might a company want to know its cash to monthly cash expenses ratio?
    To assess how long it can operate without new cash inflows, especially in case of delayed or stopped payments.
  • Is the cash to monthly cash expenses ratio commonly used in all accounting courses?
    No, it is a rare ratio and may not be emphasized in all accounting courses.
  • Why is the cash to monthly cash expenses ratio considered easy to calculate?
    Because it only requires dividing the cash balance by monthly expenses, and the necessary numbers are usually provided.
  • What hypothetical situation does the cash to monthly cash expenses ratio consider?
    It considers how long a company could operate if it stopped receiving any new cash inflows.
  • Why should students double-check if their professor covers the cash to monthly cash expenses ratio?
    Because it is a rare ratio and may not be required in every course, but it's easy to calculate if needed.