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The ratio of cash to monthly cash expenses is computed as _____. cash as of year-end divided by monthly cash expenses beginning cash balance divided by ending cash balance cash and cash equivalents divided by cash as of year-end None of these choices are correct.

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Answer:

Computation of the Ratio of Cash to Monthly Cash Expenses:

None of these choices are correct.

Explanation:

The correct formula is Cash and Cash Equivalents/monthly expenses.  And monthly cash expenses = Negative cash flows from operations/12.

But, in doing this calculation, first determine the monthly cash expenses, as given above.  With the resulting figure, you can then apply to the Ratio of Cash to Monthly Cash Expenses.

The Ratio of Cash to monthly cash expenses helps a company to assess how long it can continue to operate given the heavy expenses burden it is experiencing, if it is a startup company.  It also helps a company in distress to determine how long it could continue to operate before generating positive cash flows.

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