The Defensive Interval Ratio can inform a business how long it can continue to pay its bills without generating additional sales.
It is calculated as follows:
(Cash + Cash Equivalents + Trade Receivables) / Average Daily Expenses
For example, your business has the following:
- $25,000 in the bank
- Is owed $60,000 by its customers
- Spends on average $2,000 per day
Therefore ($25,000 +$60,000) / $2,000 = 42.5 days is your Defensive Interval Ratio.
If you would like to discuss further please contact us:
McNamara & Company - Chartered Accountants, located minutes from the Melbourne CBD
www.mcnamaraandcompany.com.au/contact-us
Phone +61 3 9428 1062
Email admin@mcnamaraandco.com
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