Discussion
The projected cash operating expenditure of a firm for the next year is Rs. 1,82,000. It has quick current assets amounting to Rs. 40,000. What will be the defensive internal ratio ?
Answer: D
The defensive interval ratio is about 80 days.
The defensive interval ratio (printed 'internal') shows how many days a firm can meet its cash operating expenses out of its quick assets, without new revenue.
\[ \begin{aligned} \text{Daily expense} &= \frac{1,82,000}{365} \approx 498.6 \\ \text{DIR} &= \frac{40,000}{498.6} \approx 80\ \text{days} \end{aligned} \]
160 days would need double the quick assets, and 5 days or 500 days come from dividing the wrong way or ignoring the daily conversion.
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