What is the Ratio of Cash to Monthly Expenses?

3/28/2016

Cash is Critical for Survival

For startup companies or companies in financial distress, cash is critical for survival. In their first few years, startup companies often report losses and negative net cash flows from operations. In such case, the ratio of cash to monthly cash expenses is useful for assessing how long a company can continue to operate without:

Additional financing
Generating positive cash flows from operations

Ratio of Cash to Monthly Cash expenses = Cash as of Year-end/Monthly Cash expenses.

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Source: Corporate Financial Accounting 12E

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