Select Page

EXAMPLE

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.

Solution

1

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.

[vfb id=1]

Share This