Defensive-Interval Ratio Definition

Forex Glossary


The word defensive-interval ratio identifies some way of measuring the amount of days a firm may operate with just its existing assets. Even the defensive-interval ratio is considered a measure of bandwidth, because it assesses an organizations capability to satisfy its obligations.


Defensive-Interval Ratio = Defensive Assets / / Daily Operational Expenses


  • Defensive Assets = Cash Marketable Securities Net Receivables
  • Daily Operational Expense = (Operating Expenses – Non Cash Charges) / / 365

Note: Days may be your system of measure with this particular ratio.


Liquidity ratios allow the investor-analyst, in addition to creditors, to comprehend whether a business will have trouble fulfilling its obligations. Also called DIR, the defensive-interval ratio measures the quantity of days a corporation could operate with just its present defensive resources (cash, marketable securities, and net metering ).

The provider ‘s daily operating expenses come from the denominator of the ratio. On average, this value can be seen by accepting the corporation ‘s yearly operating expenses, with no dues fees, and dividing the value by the quantity of days annually. Non-cash charges incorporate ordinary expenses like depreciation, depreciation, amortization in addition to outstanding items (onetime charges).

The defensive-interval ratio might be employed by investor-analysts to supplement a number of the more customary calculating ratios. By way of instance, the current ratio and quick ratio compare a business ‘s relatively liquid assets to its responsibilities, which can be balance sheet things. The DIR contrasts the exact same pair of resources into this provider ‘s operational expenses, which stems from the earnings announcement. Taken together, these measures offer a wider perspective of this organizations capacity to meet it shortterm obligations.


Several lenders were assessing the fiscal health of Company A after having a discharge of their year end financial statements. The Entire working expenditures for Company A Come in the table beneath:

Revenue $7,569,000
Cost of Revenue $3,976,000
Gross Profit $3,593,000
Selling, General and Administrative Expense $1,576,000
Depreciation / Amortization $110,000
Research & Development $438,000
Total Operating Expense $6,100,000

While the dining table below includes a list of Company A’s current resources:

Cash & Equivalents $2,581,000
Short-Term Investments $756,000
Cash and Short-Term Investments $3,337,000
Total Receivables, Net $4,253,000
Total Inventory $3,864,000
Other Current Assets, Total $1,279,000
Total Current Assets $12,733,000

Using the information in the preceding tables, then it’s potential to see Company A’s defensive-interval ratio. Step one would be always to determine their daily operational expenditures:

= (Operating Expense – Non Cash Charges) / 365
= ($6,100,000 – $110,000) / / 365, or 16,400

The defensive resources of Company A will be equivalent to:

= Cash Marketable Securities Net Receivables
= 2,581,000 $756,000 $4,253,000$7,590,000

From Both of These values, it’s potential to expect Company A’s defensive-interval ratio:

= Defensive Assets / / Daily Operational Expenses

= 7,590,000 / $16,400, or 462 days

The investor-analyst would subsequently compare the aforementioned value to this of businesses in the Exact Same sector as Company A.