Defensive Interval Ratio Calculator
Monitor the financial health of your company with Calcopolis
This simple online DIR calculator allows you to measure how long a company can operate with its current assets without an additional cash inflow.
This simple comparison of liquid assets to the average daily expenses is easy to understand. Even small business owners unfamiliar with complex financial metrics can use it as a standard tool for measuring their business health.
What is the defensive interval ratio?
The Defensive Interval Ratio is a liquidity metric of a company's financial health. It tells you precisely how many days a company can operate using its current assets without liquidating the long-term assets or rising debt.
Defensive Interval Ratio is also known as Defensive Interval Days since the result is expressed in days.
How to calculate Defensive Interval Ratio?
If you wish to calculate the Defensive Interval Ratio, follow the procedure.
1. Calculate the current assets of the company.
To calculate current assets, sum up the cash and cash equivalents, marketable securities, and accounts receivable.
2. Calculate the daily expenses of the company.
If you wish to calculate the average daily expenditures, subtract annual non-cash charges from annual operating expenses and divide the result by 365 days.
- 3. Calculate the Defensive Interval Ratio using the formula below.
Defensive Interval Ratio Formula
The formula for finding DIR is pretty strain forward.
DIR = Current_Assets / AVG_DAILY_EXPENDITURE
- Current Assets - any asset that can be sold or consumed through normal business operations in the current fiscal year.
- AVG_DAILY_EXPENDITURE - average daily cash expenses
The importance of Defensive Interval Ratio.
The DIR is essential because it not only gives precise information about the company's current financial health but also allows one to measure a trend of whether the financial condition is improving.
If the company is increasing the value of the Defensive Interval Ratio each year, it's a clear indicator that its growth is based on a stable foundation.
Furthermore, the high DIR value makes the company more resistant to the market downturn or unexpected events.
What is a good DIR value?
While a high DIR value gives a company a good liquidity buffer, keeping its value too high limits the company's long-term growth.
The decision on the expected value of the Defensive Interval Ratio depends on several factors, among the most popular are:
- sales stability,
- company's access to external capital,
- market environment
Alternative liquidity metrics
Although DIR is appreciated for its simplicity, it is not the only liquidity metric business owners can measure. If you wish to dive deep into the topic, visit our free cash flow calculator and cash ratio calculator.