Defensive Interval Ratio Calculator (days of cash cover)

Understanding the defensive interval ratio calculator — concept and principle

This calculator estimates how many days a business could keep paying its operating costs from liquid assets alone, with no new revenue. It shows the defensive interval in days and months, the defensive assets, daily cash spending and the days covered by cash and investments only. Analysts and owners use it as a stress test of short-term liquidity.

How long without new income? — with the default inputs: 85.9 days.

How it is calculated

Defensive assets = cash + short-term marketable investments + accounts receivable
Cash operating expenses = operating expenses including COGS − non-cash expenses (depreciation, amortization)
Daily cash expenditures = cash operating expenses ÷ days in the year
Defensive interval (days) = defensive assets ÷ daily cash expenditures
Months of cover = days ÷ days in the year × 12
Days from cash and investments only = (cash + investments) ÷ daily cash expenditures

The principle

The current and quick ratios compare liquid assets with liabilities on the balance sheet. The defensive interval compares them with spending instead, which answers a practical question: how long could the firm keep running if sales stopped? Inventory is excluded because it must be sold first. Depreciation and amortization are removed because they do not use cash. Interest, taxes and capital spending are not included unless you add them to expenses.

Worked example

Defaults: cash 180,000; investments 70,000; receivables 150,000; operating expenses 1,825,000 including 125,000 non-cash; 365 days.

Defensive assets = 180,000 + 70,000 + 150,000 = $400,000.
Cash operating expenses = 1,825,000 − 125,000 = $1,700,000.
Daily cash expenditures = 1,700,000 ÷ 365 = $4,657.53.
Defensive interval = 400,000 ÷ 4,657.53 = 85.9 days, or 2.8 months.
Cash and investments only = 250,000 ÷ 4,657.53 = 53.7 days.

Each point is the calculator re-run with only “Operating expenses per year incl. cost of goods sold” changed; the gold point is the default example. Change the inputs above and this chart follows your numbers.

Operating expenses per year incl. cost of goods sold	Defensive interval (days)
456,250	440.8
912,500	185.4
1.37e+06	117.4
1.82e+06	85.9
2.28e+06	67.7
2.74e+06	55.9
3.65e+06	41.4

How to read the result

Longer is safer. A business with about three months of cover can ride out a short disruption; a few weeks leaves little room. Receivables only help if customers actually pay, so the cash-only figure is a stricter test. Seasonal businesses should check the ratio at their low point, not just at year end.

Common mistakes

Including inventory in defensive assets.
Forgetting to remove depreciation and amortization.
Counting doubtful receivables at full value.
Comparing ratios that use 360 and 365 days.

Keep in mind: The ratio assumes spending continues unchanged and ignores new borrowing or cost cuts. It is a stress indicator, not financial advice.

Frequently asked questions

How is this different from the quick ratio?

The quick ratio compares liquid assets with current liabilities; the defensive interval compares them with daily spending.

Why use 360 days?

Some textbooks use a 360-day year for simplicity. The calculator accepts 360 to 366.

What is a good defensive interval?

There is no universal benchmark. Compare with similar companies and with your own risks and seasonality.

Sources: CFA Institute, "CFA Program Level II Financial Ratio List"

Checked 9 Nov 2026. Defensive interval ratio = (cash + short-term marketable investments + receivables) ÷ daily cash expenditures: CFA Institute, “CFA Program Level II Financial Ratio List”. Daily cash expenditures from annual cash operating expenses ÷ days: arithmetic.

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