Quick Definition
Measures the number of days a company can continue operating before it runs out of cash.
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Basic Defense Interval Formula
Explanation of Basic Defense Interval
The Basic Defense Interval is called many things; BDI, Defensive Interval Ratio (DIR) and Defensive Interval Period (DIP). The Basic Defense Interval measures the number of days a company can continue paying for its cash expenses without any additional funding.
This ratio avoids using Cost of Goods Sold as an expense, since this is not a cash expense. A similar ratio that does use Cost of Goods Sold is the Expense Coverage Days.
Importance of Basic Defense Interval
The greater the number of days that is calculated from the Basic Defense Interval, the longer the company can keep paying its cash expenses and continue doing business. This ratio should be compared to other companies in the same industry, as well as compared to industry averages.
A company’s Operating Expenses should be the largest component of the expenses used by this ratio. If this is not the case, more investigation will need to be done to find out why.