What does the days cash on hand ratio estimate?

The days cash on hand ratio estimates the number of days an entity can cover its operating expenses with existing cash. This ratio provides a snapshot of an organization's liquidity and financial health, essentially indicating how long the entity can operate without additional cash inflows. It is particularly useful for assessing whether a healthcare organization possesses sufficient cash reserves to meet its short-term obligations and continue its operations during periods of reduced revenue or unexpected expenses.

To calculate this ratio, the organization's cash and cash equivalents are divided by the average daily operating expenses, yielding a figure that signifies the duration the current cash resources can sustain operations. A higher number indicates a stronger liquidity position, while a lower number may signal potential cash flow issues.