Question

Cash operating expenditure of Rs. 1,82,500 has been projected for a company with Rs. 40,000 quick assets. Determine the defensive interval ratio. 

Answer 1

Projected Daily Cash Requirement = 1,82,500 / number of days in a year 

= (1,82,500 / 365)  

= Rs. 500

Defensive Interval Ratio = Quick Assets / Projected Daily Cash Requirement 

= (40,000 / 500) 

= 80 days

A high defensive interval ratio indicates safety of short term liquidity, thus the quick assets in this case are sufficient to meet operating expenses for 80 days.