Which of the following statements is true about the Days' Cash on Hand ratio?
A) It is not useful in comparing different businesses to one another.
B) It uses all current assets in the numerator of the ratio.
C) The only operating expense used in the denominator of the ratio is depreciation expense.
D) It may be useful in determining whether a business is able to meet its cash commitments.

Question

Quizplus · Accepted Answer

The Days' Cash on Hand ratio may be useful in determining whether a business is able to meet its cash commitments, making statement D true. Statement A is false because the ratio can be useful in comparing different businesses to one another. Statement B is false because only cash and cash equivalents are used in the numerator of the ratio. Statement C is false because all operating expenses are used in the denominator of the ratio, not just depreciation expense.

Which of the Following Statements Is True About the Days