A reader has requested that we give an explanation of cash on hand and profit. There seems to be some confusion about how the numbers work.
Cash on Hand is exactly what it sounds like – how much cash money is in the bank, right now?
If you’re looking at the balance in your checking account and add that to your savings account, that is “cash on hand.” Let’s assume that amount is $7500.
“Days cash on hand” = Cash on Hand / Daily Operating Expenses
Daily Operating Expenses = Annual Operating Expenses / 365
Let’s assume that it costs you $36,500 each year to run your household (Annual Operating Expense). If you divide that by the number of days in the year (365) you will get your “daily operating expense.”
$36,500 / 365 = $100 $100 is your daily operating expense.
Earlier, we said that you had $7,500 in your bank account (your “Cash on Hand”).
$7,500 / $100 = 75 You have 75 Days Cash on Hand. That means you have enough money to pay your bills for 75.
Profit is a different formula: Profit = Revenue – Expenses
Let’s assume you earn $42,000 each year (Revenue).
Your annual expenses are $36,5000 (Expenses).
$42,000 – $36,500 = $5,500 You had a “profit” of $5,500.
Notice that your profit of $5,500 is not equal to your cash on hand of $7,500.
Cash on Hand answers the question “how much cash do we have, right now?” That could on Jan. 1, Mar. 4, July 31, etc.
Profit answers the question “how much did we get to keep after we paid all the bills, during a certain time?”
The certain time could be a month, a quarter, or a year, “How much did we get to keep this year?”
For most people, the year starts on January 1 and ends December 31.
For Singing River, the year starts on October 1 and ends September 30.
When Singing River has a profit of $600,000 that answers the question “How much did SRHS keep after they paid the bills, from Oct 1, 2014 – Sept 30, 2015?”
According to the audit, as of Sept. 30, 2015, Singing River had $45 million cash on hand, which is approximately 51 days cash on hand.