How this calculator works
The defensive interval ratio, sometimes called the defensive interval period, measures how long a company could pay its cash operating costs using only the assets that are already close to cash. The numerator adds cash, marketable securities and accounts receivable. The denominator is daily cash operating expenditure: annual operating expenses minus non-cash charges such as depreciation and amortisation, divided by the days in the period. A result of 90 days means the company could keep operating for about three months without any new revenue. A longer interval is safer, but very high figures can also mean idle cash that is not being invested.
Formula
Defensive assets = cash + marketable securities + accounts receivable. Daily cash operating expense = (annual operating expenses - annual non-cash charges) / days in the period. Defensive interval ratio = defensive assets / daily cash operating expense.
Worked example
A company holds $120,000 of cash, $80,000 of marketable securities and $150,000 of receivables, so defensive assets are $350,000. Annual operating expenses of $900,000 less $100,000 of non-cash charges leave $800,000 of cash expenses, or $2,191.78 a day over 365 days. The defensive interval is $350,000 / $2,191.78 = 159.7 days.
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Frequently asked questions
Should inventory be included?
No. Inventory has to be sold before it produces cash, so the ratio deliberately excludes it. The quick ratio also excludes inventory for the same reason.
Which expenses should I count?
Use cash operating costs: wages, rent, utilities, selling and administrative costs. Exclude depreciation, amortisation and other non-cash charges, and exclude interest and tax if you want the operating measure.
Why compare with the quick ratio?
The quick ratio compares liquid assets with current liabilities, a balance-sheet view. The defensive interval converts the same assets into a period of time, which is often easier to interpret alongside a cash runway.