Days' cash on hand

Financial statement data for years ending December 31 for Newton Company follow:

Line Item Description	20Y9	20Y8
Cash (end of year)	$25,500	$24,250
Short-term investments (end of year)	8,270	9,460
Operating expenses	60,135	63,780
Depreciation expense	13,225	11,400
Determine the days’ cash on hand for 20Y8 and 20Y9. Assume 365 days in a year. Round all calculations to one decimal place.

Year	Days’ Cash on Hand
20Y8:	fill in the blank 1 of 2
 days
20Y9:	fill in the blank 2 of 2
 days


The formula for calculating Days' Cash on Hand is:

\[
\text{Days' Cash on Hand} = \frac{\text{Cash + Short-term Investments}}{\text{Average Daily Operating Expenses}}
\]

### Step-by-Step Calculation:

1. **Calculate Average Daily Operating Expenses:**

\[
\text{Average Daily Operating Expenses} = \frac{\text{Operating Expenses - Depreciation Expense}}{365}
\]

This adjustment excludes non-cash expenses like depreciation.

2. **Calculate Days' Cash on Hand for Each Year:**

\[
\text{Days' Cash on Hand} = \frac{\text{Cash + Short-term Investments}}{\text{Average Daily Operating Expenses}}
\]

Let's calculate this step-by-step for both 20Y8 and 20Y9.

### Year 20Y8
1. **Cash + Short-term Investments (end of year 20Y8)**:

\[
24,250 + 9,460 = 33,710
\]

2. **Operating Expenses - Depreciation Expense**:

\[
63,780 - 11,400 = 52,380
\]

3. **Average Daily Operating Expenses**:

\[
\frac{52,380}{365} = 143.5
\]

4. **Days' Cash on Hand for 20Y8**:

\[
\frac{33,710}{143.5} \approx 235.0 \text{ days}
\]

### Year 20Y9
1. **Cash + Short-term Investments (end of year 20Y9)**:

\[
25,500 + 8,270 = 33,770
\]

2. **Operating Expenses - Depreciation Expense**:

\[
60,135 - 13,225 = 46,910
\]

3. **Average Daily Operating Expenses**:

\[
\frac{46,910}{365} \approx 128.5
\]

4. **Days' Cash on Hand for 20Y9**:

\[
\frac{33,770}{128.5} \approx 262.8 \text{ days}
\]

### Final Answers:
- **20Y8: 235.0 days**
- **20Y9: 262.8 days**

Would you like more details on any part of the calculation?

---

### Relative Questions:
1. How does an increase in operating expenses affect Days' Cash on Hand?
2. Why is depreciation excluded when calculating average daily operating expenses?
3. How would a decrease in cash and short-term investments impact the Days' Cash on Hand?
4. What other liquidity ratios can be used alongside Days' Cash on Hand to assess a company's financial health?
5. How would changes in business operations (e.g., expansion) influence these calculations?

**Tip:** Days' Cash on Hand is a liquidity measure indicating how long a company can continue to pay its operating expenses using only its cash and short-term investments.

Financial statement data for years ending December 31 for Newton Company follow:

Line Item Description	20Y9	20Y8
Cash (end of year)	$25,500	$24,250
Short-term investments (end of year)	8,270	9,460
Operating expenses	60,135	63,780
Depreciation expense	13,225	11,400
Determine the days’ cash on hand for 20Y8 and 20Y9. Assume 365 days in a year. Round all calculations to one decimal place.

Year	Days’ Cash on Hand
20Y8: fill in the blank 1 of 2 days
20Y9: fill in the blank 2 of 2 days.

Learn how to calculate the Days' Cash on Hand for Newton Company for 20Y8 and 20Y9. Detailed step-by-step calculations using financial statement data, including cash, short-term investments, and operating expenses. Understand liquidity ratios and financial statement analysis. Suitable for Grades 10-12.

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