Defensive Interval Ratio


DEFINITION of 'Defensive Interval Ratio'

An efficiency ratio that measures how many days a company can operate without having to access non-current (long-term) assets.

The defensive interval ratio (DIR) is calculated as:

DIR = Current Assets / Daily Operational Expenses

Also known as the "Defensive Interval Period".

BREAKING DOWN 'Defensive Interval Ratio'

The DIR is thought by many people to be a better liquidity measure than the quick and current ratios. Because these ratios compare assets to liabilities rather than comparing assets to expenses, the DIR and current/quick ratios would give quite different results if the company had alot of expenses, but no debt.

The DIR is not a replacement to the other ratios, but a complement. As with all financial analysis, a prudent investor will use a basket of different analysis when deciding on whether a company is a good investment.

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  1. Does working capital measure liquidity?

    Working capital is a commonly used metric, not only for a company’s liquidity but also for its operational efficiency and ... Read Full Answer >>
  2. Can working capital be negative?

    Working capital can be negative if a company's current assets are less than its current liabilities. Working capital is calculated ... Read Full Answer >>
  3. How do I read and analyze an income statement?

    The income statement, also known as the profit and loss (P&L) statement, is the financial statement that depicts the ... Read Full Answer >>
  4. Does working capital include prepaid expenses?

    The calculation for working capital includes any prepaid expenses that are due within one year, since such prepaid expenses ... Read Full Answer >>
  5. Does working capital include short-term debt?

    Short-term debt is considered part of a company's current liabilities and is included in the calculation of working capital. ... Read Full Answer >>
  6. Do dividends affect working capital?

    Regardless of whether cash dividends are paid or accrued, a company's working capital is reduced. When cash dividends are ... Read Full Answer >>

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