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Defensive Interval Ratio Calculator

Debt investment calculators

What is Defensive Interval Ratio?

Defensive Interval Ratio (DIR), also known as defensive interval days, is a liquidity ratio that measures the financial health of a company. In particular, the metric indicates how long a company can sustain its operations with its current assets, assuming no additional cash inflow. Unlike other liquidity ratios such as the current ratio, the defensive interval ratio tells us exactly how many days the company can operate normally with its current financial situation. This provides investors with a more direct yet holistic picture of a company's liquidity.

How to Use a Defensive Interval Ratio Calculator

To calculate the Defensive Interval Ratio, we need the following information:

  1. The company's current cash balance

  2. Marketable securities balance

  3. Accounts receivable

  4. Annual operating expenses

  5. Annual non-cash charges (typically depreciation and amortization)

We can follow these three steps to calculate the defensive interval ratio:

  1. Calculate the current assets: Current assets include cash and cash equivalents, marketable securities, and accounts receivable.

    Current assets = cash and cash equivalents + marketable securities + accounts receivable

  2. Calculate the average daily expenditures: This is the amount of money a company spends on an average day of operation.

    Average daily expenditures = (annual operating expenses - annual non-cash charges) / 365

  3. Calculate the defensive interval ratio: The final step involves calculating the defensive interval ratio directly, which provides the number of days the company can sustain its daily cash expenses without using long-term assets and extra funding.

    Defensive Interval Ratio = current assets / average daily expenditures

Example of Using a Defensive Interval Ratio Calculator

Let's use a hypothetical Company Alpha with the following information:

  • Company Alpha's cash balance: $10,000,000

  • Company Alpha's marketable securities balance: $5,000,000

  • Company Alpha's accounts receivable: $17,000,000

  • Company Alpha's annual operating expenses: $110,000,000

  • Company Alpha's annual non-cash charges: $37,000,000

Following the steps above, the calculation for Company Alpha's Defensive Interval Ratio would be:

  1. Current assets: $10,000,000 (cash) + $5,000,000 (marketable securities) + $17,000,000 (accounts receivable) = $32,000,000.

  2. Average daily expenditures: (110,000,000 (operating expenses) - $37,000,000 (non-cash charges)) / 365 = $200,000.

  3. Defensive Interval Ratio: $32,000,000 (current assets) / $200,000 (average daily expenditures) = 160 days.

Company Alpha has a Defensive Interval Ratio of 160 days, meaning it can run its operations for 160 days using its current assets without receiving any additional cash inflow.

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