What exactly is meant by cash days or days cash on hand and how do you calculate it?

Days cash on hand is the number of days that an organization can continue to pay its operating expenses, given the amount of cash available. Managers should be aware of the days cash on hand in the following circumstances (a). When a business is starting up, and is not yet generating any cash from sales (b).During the low part of a seasonal sales cycle, when there may be no sales. (C).During a transition to a new product line, when sales of the old product line are poor and declining.

One interpretation of Days of Cash is that it is the number of days you can stay in business if you don’t make any more sales or collect any more money from customers.  

The simple definition is to take your ending cash balance and divide by daily cash operating expenses (Total Operating Expenses less Depreciation and Amortization). 

Cash is really cash and cash equivalents – stuff you can use to pay your bills.  So it includes your bank account and short term investments that can be converted to cash quickly. Daily cash operating expenses are calculated differently depending on the time frame you are looking at.

has annual operating expenses of $730,000, divide $730,000 by 365 to find the daily operating expenses equal $2,000. Divide the cash and cash equivalents on hand total by the daily operating costs to find the days cash on hand

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