top of page

Defensive Interval Ratio (DIR)

What Is Defensive Interval Ratio (DIR)?

The Defensive Interval Ratio is a ratio that determines how long a corporation can operate without using non-current assets. Instead of comparing assets to expenses, this ratio compares assets to liabilities. The Defensive Interval Ratio, or DIR, is a useful tool for determining whether or not a company is a viable investment for you. The Defensive Interval Period is another name for the Defensive Interval Ratio.

Defensive Interval Ratio is an efficiency ratio that assesses how many days a corporation can operate without having to access non-current or long-term assets, according to its definition.

Alternatively, this can be considered as the amount of time a corporation can operate only on cash. Although the DIR is occasionally referred to as a financial efficiency ratio, it is more frequently referred to as a liquidity ratio.


Defensive Interval Ratio (DIR)


Current Assets = Cash + Accounts Receivable + Marketable Securities

Daily Expenditures = (Annual Operating Expenses – Non-cash Charges) / 365


• The defensive interval ratio (DIR) attempts to determine how many days a corporation can function on liquid assets alone.

• The defensive interval ratio is calculated by comparing current assets to daily expenses.

• The defensive interval ratio can be used to see if a company's liquidity cushion for meeting expenses is growing or shrinking over time.

• Because it compares assets to real expenses rather than liabilities, many analysts consider the defensive interval ratio (DIR) to be more relevant than the quick ratio or current ratio.

• While a higher DIR number is preferable, no exact number can be used to determine what is proper or superior.

• Even though the Defensive Interval Measure (DIR) is the most accurate liquidity ratio available, DIR overlooks one important factor. If you're an investor looking at DIR to assess a company's liquidity, you should be aware that DIR ignores the company's financial difficulties over time. As a result, even if the liquid assets are sufficient to cover expenses, the company is not always in a strong position. To learn more as an investor, you must dig deeper.

• You should include the cost of products sold in your average daily expenses when calculating the average daily expenses. Many investors fail to incorporate it as part of their average daily expense, resulting in a figure that differs from the true one.

Pros and cons:


Because it provides a real-world statistic in days, the DIR is a useful tool for measuring a company's financial health. In this way, a company knows exactly how long it can continue to operate by paying daily operational expenses without falling into financial difficulties, which would force it to seek extra funding via new equity investment, a bank loan, or the sale of long-term assets. This is critical in terms of managing its financial health since it allows it to manage its balance sheet without having to take on unnecessary debt.

In this regard, it is a more useful liquidity measure to examine than the current ratio, which, while providing a clear comparison of a company's assets and liabilities, does not provide any definitive indication of how long a company can function financially without experiencing significant problems in simple day-to-day operations.


The defensive interval ratio has a number of flaws. Estimating the amount of cash necessary on a daily basis is a difficult issue. A corporation may require a huge quantity of cash on occasion, such as large payments to suppliers or staff. On some days, the amount of money necessary isn't as large. DIR is less accurate due to this inconsistency.

In addition, the data utilized to calculate liquid assets is influenced by a variety of additional factors. Cash and accounts receivable fluctuate throughout the year as new transactions occur. As a result, this ratio should be utilized with caution, as it may not accurately reflect the company's economic realities.


A company currently has 50,000 in cash, 20,000 in accounts receivable (AR), and 30,000 worth of available for sale securities. The company has 400,000 in annual operating expenses and incurs 35,000 in annual depreciation. What is its defensive interval ratio?


= (50,000 + 20,000 + 30,000) / (400,000-35,000) /365

= (50,000 + 20,000 + 30,000) / 399904

= 100000 / 399904

= 0.25

bottom of page