Understanding Cash on Hand vs. Profit

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.

1 thought on “Understanding Cash on Hand vs. Profit”

  1. I am reminded of my college accounting professor, who on the first day of class told the following: 3 recent accounting graduates all applied for the accounting position at Acme Corporation. The president, upon interviewing the first candidate, handed out a financial paper with various revenue and expense numbers. He asked of the candidate “What was my “PROFIT’?” After studying the numbers, the candidate said, “Sir, you made ABC in profits. The President replied, “Thank you, I’ll review your job application.”

    The identical sequence occurred with the second graduate, resulting in this candidate responding, “Sir, you made XYZ in profits.” The President again replied, “Thank you, I’ll review your job application.”

    Finally, the third candidate, after the identical sequence of events had occurred, handed the financial paper back to the President and responded, “Sir, what do you want your profit to be?” The President immediately exclaimed, “Young lady, you ARE hired!”

    By way of the above, the answers to the questions about cash flow and profits cited above are absolutely correct, but at the same time, they leave a significant gap to the inquirer’s (and perhaps other readers’) understanding of what is happening at SRHS. To more fully understand, one must explore these numbers both in absolute terms, but also in relative terms.

    For example: Cash on hand, while absolute (75 days in the example) is meaningless, unless it is examined in relationship to its increasing/decreasing trend line. All SRHSwatch readers should be asking the following type questions: 1.)What is this number on a month by month basis for the last one, three, five (how ever long the hospital has been at financial risk) years on a month by month basis? 2.) Where are any written plans to address these trends? 3.)SRHS has outstanding bond debt that has restrictive covenants regarding the minimum cash on hand levels. Show the documentation that SRHS Trustees/management informed the guarantors of this debt (that being every single property taxpayer of Jackson County–through the Board of Supervisors) that they were (and still are?) in default and really had no viable plan to remove themselves from this default condition. Who cares if management touts that cash on hand has increased from 30 days to 60 days (as an example) when the requirement is 120 days? It’s past time to stop accepting the bull hockey from trustees/management and start asking serious questions and demanding rational answers.

    As an aside, surely Special Counsel Guice, who has worked with all kinds of financial advisors knows the answers to the above questions. Perhaps, he has even revealed this information to his clients–your Supervisors. Now, why aren’t these folks being honest with the citizens of Jackson County and all employees, past and present, of the hospital. Show us the documents whereby the bond trustee has waived the cash on hand provisions in the past. What about indemnification for tomorrow’s failure? Readers of this blog; it is past time to be serious.

    Now, as to the issue of “profits”. Remember the beginning story. All medical financial transactions originate with the Medical Coding Classification for a given procedure. This writer realizes that all the SRHSwatch readers probably know more about this subject than him. But, as understood, each code is assigned a monetary value (Who does this assignment, how it is calculated, how often it is modified, etc. is an unknown to myself. Perhaps readers can enlighten). Now, from that initial monetary value, government agencies, as well as private insurance carriers negotiate with hospitals/doctors/ other medical providers as to what “they” will pay for that given service.

    For example: the standard coding may allocate a revenue benefit of $1,000 for a procedure. The US government (medicare/Medicaid) might very well say—no,no,no! we’re only going to reimburse at a $600 level. A Blue Cross/Blue shield insurance program might negotiate a reimbursement at a $400 level. So let’s think here: What if a less than forthright management reported to an incapable/incompetent board of trustees that they generated revenue at the standard coding level. Sounds good, except that sooner or later an audit will require the charge off of some fictitious revenue. (Does this sound familiar?) Who knows what they count or don’t count as revenue for that large percentage of their population covered by none of the above reimbursers. At a minimum, you ought to know how SRHS records their entries.

    Furthermore, since it is a stated objective of SRHS trustees/management to eliminate the pension plan, does one not think that there might be an incentive to overstate expenses, thus minimizing profits, thus justifying elimination of plan due to unsustainability? Who has asked this question? Where is the independent analysis? Again, perhaps Jackson County Special Attorney Guice, being paid by the taxpayers, has this info in his hip pocket, but is unwilling to share due to confidentiality documents with the Supervisors. So why has not the public not demanded that the Supervisors release the confidentially requirement? There is probably a zillion other questions. Where, oh where is Supervisor Melton when you need logical, intelligent discussions?

    This reader is positive that a judicial system predicated upon fairness would know these answers before passing judgement, especially when it involves lives and financial viability. What does Judge Hilburn opine? What about Special Master Singletary? Your very own Special Fiduciary Trustee Simpson? Certainly, they know the details behind the financial numbers they are sharing with you—the employees, and pension plan participants.(What, they are not!) The concept of relativity in numbers has circled back for consideration.

    Sorry for the length of this response, but “It Ain’t Simple”.

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