The Defensive Interval Ratio is a great indicator of a business’ resilience.  

It informs a business how long it can continue to pay its bills without generating additional sales.  

It is often used in conjunction with the Quick Ratio and assess short term risk.

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 be 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.mcnamaraandco.au/contact-us
 Phone +61 3 9428 1062
 Email admin@mcnamaraandco.au

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