What is cash fluctuation?

Cash turnover is the ratio of efficiency that allows the company to determine how it has used cash to generate sales. The formula divides sales from the sale of an average cash balance for a specific period. Financial statements at the end of the month contain the information needed to calculate this number, specifically statement and loss and balance sheet. The formula for cash turnover basically says the company, how many times the company has undergone its cash balance for this period, whether monthly or annual. Accountants often use a formula to help create budgets for estimating and checking business operations. The first part of the profit and loss statement is stated by sales sales for this period. The total amount of all income lines is represented by the numerator for the cash turnover formula. The average cash balance requires a little more work to calculate. The company's initial cash balance and the termination of the cash balance is divided by two to the average cash balance for this period.

For example, the company has $ 325,000 in the US (USD) in sales and $ 50,000 in an average cash balance for October. Using a cash turnover formula, the company's turnover is 6.5, which means that the company has burned more than six times in a month. Cash spent at most likely paid the expenses necessary to operate operations, purchase inventory for production or selling and paying employees for work in the field. This example would also apply if it uses a formula for annual data. The annual result will be a much larger number.

Companies can use a cash turnover formula to determine whether they use more or less cash in common operations. For example, the previous example resulted in a cash turn of 6.5 for October. If September was $ 310,000 on sale and a turnover ratio of 5.5, the accountant must determine whether another 1.0 in the turnover ratio was acceptable to get another $ 15,000 in sale. The use of this ratio will therefore help determine the effective use of cash. If the nextOctober money expenditure must find out where there are inefficiency in business.

Cash ratio is also a benchmark tool. Companies can compare their use of cash with industry or competitor leaders. The comparison shows which company was more efficient when using cash. If the company has a lower cash turnover ratio than the industry average, there may be a problem in business. The ratio works well as a scale because it changes standard accounting information to usable statistics, which allows comparison.