Days cash on hand worked on one illustrative group, with the denominator built properly and the numerator read four ways, from reported cash to cash treasury can spend.
Days cash on hand is unrestricted cash divided by daily cash operating expenses, which are operating expenses less depreciation, amortisation and other non-cash charges, over 365. On an illustrative group with 170,000,000 of unrestricted cash and 1,040,000,000 of annual cash expenses, it is 59.7 days. Take out the cash that is trapped abroad and the float the business needs to function and the same group has 40.4 days it can actually use.
Worked in full in Treasury Management by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
An industrial group with annual revenue of 1,300,000,000. The figures are illustrative; the definitions are the ones to agree before the metric goes in a report or a policy.
| Item | Amount |
|---|---|
| Total operating expenses | 1,150,000,000 |
| Less depreciation and amortisation | −95,000,000 |
| Less other non-cash charges (provisions, share-based pay) | −15,000,000 |
| Cash operating expenses | 1,040,000,000 |
| Reported cash and short-term deposits | 180,000,000 |
| Of which restricted (collateral, escrow) | 10,000,000 |
| Of which trapped (cannot be upstreamed without delay or tax) | 25,000,000 |
| Operating float the business needs to run | 30,000,000 |
| Undrawn committed revolver | 100,000,000 |
Daily cash expenses = (operating expenses − D&A − other non-cash charges) / 365
= (1,150,000,000 − 95,000,000 − 15,000,000) / 365 = 1,040,000,000 / 365 = 2,849,315
The denominator is what the company pays out to stay open: staff, suppliers, rent, taxes on operations. Depreciation is a charge, not a payment, so it is removed. Interest and capital expenditure are left out of the standard ratio; a treasurer testing survival should run a second version with them in.
Days cash on hand = cash / daily cash expenses
Standard: 170,000,000 / 2,849,315 = 59.7 days
Excel, with cash in B1 and the expense lines in B2:B4: =B1/((B2-B3-B4)/365)
| Definition | Cash, EUR | Days |
|---|---|---|
| Reported cash | 180,000,000 | 63.2 |
| Unrestricted cash (standard) | 170,000,000 | 59.7 |
| Less trapped cash | 145,000,000 | 50.9 |
| Less operating float: usable cash | 115,000,000 | 40.4 |
| Usable cash plus undrawn revolver | 215,000,000 | 75.5 |
Each line is a defensible answer to a different question. The standard figure, unrestricted cash, is what rating agencies and lenders usually mean and what a peer comparison should use. The usable figure, 40.4 days, is what treasury can spend without moving money across a border or running the business below its float. The float alone is 10.5 days of expenses: cash that is on the balance sheet every night and never available.
The gap between the first and the fourth line is 22.8 days: 36.1 per cent of reported cash is not there when it is needed. The book's case takes one balance sheet through five such readings, and the arithmetic of the float and the forecast error behind the minimum is worked in how to set a minimum cash balance.
The group reports 59.7 days cash on hand and can actually fund 40.4 days of operations from cash it controls. With the revolver it reaches 75.5 days, but only for as long as the revolver can be drawn, which depends on the covenants and the drawstop: does an undrawn revolver count as liquidity works through the day it disappears. A policy minimum should name which line it is set on.
Days cash on hand falls with every increase in the cost base, even when the cash balance does not move. The table holds cash constant.
| Cash expenses | Daily, EUR | Standard | Usable | Usable plus revolver |
|---|---|---|---|---|
| As today | 2,849,315 | 59.7 | 40.4 | 75.5 |
| +10% | 3,134,247 | 54.2 | 36.7 | 68.6 |
| +20% | 3,419,178 | 49.7 | 33.6 | 62.9 |
A growing company that holds its cash flat loses days every year. Twenty per cent growth in the cost base takes the usable figure from 40.4 to 33.6 days without a single euro leaving the bank, which is why the metric belongs beside a forecast, not only beside last year's accounts.
The standard ratio measures cover for operations. A treasurer asking how long the group lasts without new money has to add the payments that do not stop in a downturn: here 40,000,000 of interest and 60,000,000 of maintenance capital expenditure a year.
Daily payments = (1,040,000,000 + 40,000,000 + 60,000,000) / 365 = 3,123,288
Standard cash: 170,000,000 / 3,123,288 = 54.4 days. Usable cash: 115,000,000 / 3,123,288 = 36.8 days
The two versions answer different questions and should carry different names in a report. Lenders compare the first across companies; the board should see the second, on usable cash, because it is the number of days before the company has to draw, sell or borrow.
The five readings of one balance sheet, the float as a live cell and the liquidity test are in the free workbooks for this book.
It depends on the sector and on the definition. Lenders and rating agencies benchmark it within an industry, and hospitals and not-for-profits are judged on it more than industrial companies. What matters internally is the usable figure against the policy minimum: a group showing 59.7 days on unrestricted cash may have only 40.4 days of cash it can actually spend.
Yes. Depreciation and amortisation are charges, not payments, so they are deducted from operating expenses before dividing by 365. Leaving them in raises daily expenses from 2,849,315 to 3,150,685 in the worked case and understates days cash on hand from 59.7 to 54.0 days. Other non-cash charges, such as provisions and share-based pay, are removed for the same reason.
Not in the standard ratio, which uses unrestricted cash and short-term investments only. Some liquidity policies add committed undrawn facilities as a second measure: in the worked case 100,000,000 of revolver takes usable cover from 40.4 to 75.5 days. Report it separately, because the revolver can become undrawable at exactly the moment it is needed.
This article is one calculation from Treasury Management. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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