
Question Content AreaIf a company's net cash flows used in operating activities is $(1,500,000) for the year and its end-of-year cash and cash equivalents balance is $750,000, determine the company's ratio of cash to monthly cash expenses.
a. 5.0 months
b. 2.0 months
c. 6.0 months
d. 9.0 months

To determine the ratio of cash to monthly cash expenses, we need to follow these steps:

1. **Calculate the Monthly Cash Expenses:**  
   Since the net cash flows used in operating activities is $(1,500,000)$ for the year, we divide this amount by 12 to get the monthly cash expenses.

2. **Determine the Ratio of Cash to Monthly Cash Expenses:**  
   The ratio is found by dividing the end-of-year cash and cash equivalents balance by the monthly cash expenses.

### Calculations:

1. **Monthly Cash Expenses:**
   \[
   \text{Monthly Cash Expenses} = \frac{\text{Net Cash Flows Used in Operating Activities}}{12}
   \]
   \[
   \text{Monthly Cash Expenses} = \frac{-1,500,000}{12} = -125,000
   \]

2. **Ratio of Cash to Monthly Cash Expenses:**
   \[
   \text{Ratio} = \frac{\text{End-of-Year Cash and Cash Equivalents}}{\text{Monthly Cash Expenses}}
   \]
   \[
   \text{Ratio} = \frac{750,000}{-125,000} = -6.0
   \]

Since the ratio is negative, we consider its absolute value because we're interested in the number of months the company can cover expenses, not the sign.

Thus, the ratio of cash to monthly cash expenses is **6.0 months**.

### Answer: c. 6.0 months

Do you need further details or have any questions?

### Relative Questions
1. What does the ratio of cash to monthly cash expenses indicate about a company's liquidity?
2. How can a company improve its cash flow from operating activities?
3. What are the implications of having a negative cash flow from operating activities?
4. How do cash equivalents differ from other types of assets?
5. Why is it important for a company to maintain a healthy cash balance?
6. How might seasonal fluctuations impact a company's cash flow?
7. What actions can a company take if it consistently has negative cash flow from operating activities?
8. How does the ratio of cash to monthly cash expenses affect financial decision-making?

**Tip:** Regularly monitoring your cash flow and cash ratios can help anticipate financial difficulties and inform strategic decisions.

Learn how to calculate a company's cash ratio to monthly expenses with a detailed step-by-step guide. This problem involves financial mathematics and ratio analysis, focusing on determining the ratio of cash to monthly cash expenses given specific financial data. Suitable for adult learners and professionals.

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