Minimum Operating Cash

Minimum operating cash is the lowest cash balance a business plans to hold so it can meet routine payments, such as payroll, suppliers and taxes, even when customer receipts arrive late or unevenly. Companies set the level from their cash forecasting and past volatility, and often express it as a number of days of operating expenses or as a percentage of revenue; seasonal businesses may set different levels through the year. Cash above the minimum, after any other reserves, is treated as surplus available for excess cash investment, debt repayment or distribution. Analysts valuing a company sometimes estimate a similar figure to separate the cash a business needs to operate from excess cash, though methods vary and there is no standard ratio. Holding the minimum is distinct from a liquidity buffer held for stress events. Also see working capital and cash management.