[Anonymous]

Defensive-interval ratio — Measures the quantitative relationship between highly liquid assets and the average daily use of cash in terms of the number of days that cash and assets that can be quickly converted to cash can support operating costs. It is computed as:

Defensive-Interval Ratio = (Cash + (Net) Receivable + Marketable Securities) / Average Daily Cash Expenditures

[musicamor]

This can be correlated to the quick ratio.

Texas CPA - licensed in 2012!!!

[musicamor]

This can be correlated to the quick ratio.

Texas CPA - licensed in 2012!!!

[Anonymous]

@musicamor

Thanks man. When I first saw this, I thought that there probably is a more commonly known name for this obscurely-named ratio.

[Anonymous]

@musicamor

Thanks man. When I first saw this, I thought that there probably is a more commonly known name for this obscurely-named ratio.

[Texas CPA]

It is not the current ratio but it is similar.

From Investopedia:

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 utility I work for looks at “days of cash on hand” which is similar. To maintain a certain bond rating, you need a large number of days of cash on hand. We are AA so we shoot for over 300 days.

Another important ratio, in fact the most important ratio in bond covenants, is debt coverage ratio. Annual Debt Payments/Net income from operations before depreciation. Most bond covenants require 1.20 to 1.25. To maintain a high credit rating, it needs to be 1.75 to 2.00

Reg - Passed 82 Nov 2012 - Becker
Aud - Passed 86 May 2013 - Becker
BEC - Passed 88 Aug 2013 - Becker
FAR - Passed 88 Nov 2013 - Becker

https://www.becker.com/cpa-review

Texas CPA

[Texas CPA]

It is not the current ratio but it is similar.

From Investopedia:

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 utility I work for looks at “days of cash on hand” which is similar. To maintain a certain bond rating, you need a large number of days of cash on hand. We are AA so we shoot for over 300 days.

Another important ratio, in fact the most important ratio in bond covenants, is debt coverage ratio. Annual Debt Payments/Net income from operations before depreciation. Most bond covenants require 1.20 to 1.25. To maintain a high credit rating, it needs to be 1.75 to 2.00

Reg - Passed 82 Nov 2012 - Becker
Aud - Passed 86 May 2013 - Becker
BEC - Passed 88 Aug 2013 - Becker
FAR - Passed 88 Nov 2013 - Becker

https://www.becker.com/cpa-review

Texas CPA

[Author]

Replies