The projected cash operating expenditure of a firm from the next year is Rs 1.82.500. It has liquid current assets amounting to Rs 40.000. Determine the defensive-interval ratio.



The figure of 80 days indicates that the firm has liquid assets which can meet the operating cash requirements of business for 80 days without resorting to future revenues. A higher ratio would be favorable as it would reflect the ability of a rum to meet cash requirements for a longer period of time. It provides a safety margin to the rum in determining its ability to meet basic operational costs. A higher ratios would provide the firm with a relatively higher degree of protection and tends to off set the weakness indicated by low current and acid-test ratios.? Saner and Benton have also suggested a ratio of liquid assets to daily cash operating expenditure as a measure of short-term solvency.

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