Defensive interval ratio

Definition

The defensive interval ratio estimates how many days a business could keep operating using only its liquid assets, without any further income. It divides liquid assets by daily operating expenses, giving a survival horizon in days — a liquidity-focused cousin of cash runway.

In plain terms

If your liquid assets would cover 90 days of running costs with no money coming in, your defensive interval is 90 days. It is a stark measure of how long you could hold out in a crisis, useful for stress-testing resilience.

Why it matters

The defensive interval complements runway as a resilience gauge. See cash runway and cash ratio.

In practice

For a UK limited company, the defensive interval ratio is most useful as a private stress-test rather than a figure to publish. A director might run it when weighing up a quiet trading period, a supplier dispute, or a client that pays late — asking simply: if nothing else came in, how long could the business keep the lights on using only what is already liquid? The exercise forces a clear-eyed list of what genuinely counts as liquid (cash, near-cash, readily realisable investments) versus assets that only look liquid on paper, such as stock that is slow to shift or debtors who are slow to pay.

The value is in the discipline of the calculation as much as the answer. Walking through daily operating expenses line by line — rent, payroll, utilities, standing supplier commitments — often surfaces costs a director had mentally bundled together, or reveals that a chunk of "liquid assets" is actually earmarked for something else, such as VAT set aside for HMRC.

How lenders read it

Lenders and credit assessors tend to view the defensive interval alongside other liquidity measures such as the cash ratio rather than in isolation, because a single snapshot can flatter or unfairly penalise a business depending on where it sits in its billing or stock cycle. A thin defensive interval is not automatically read as distress — some business models run lean by design — but it does invite closer questions about how quickly a company could respond if income paused unexpectedly, and what levers (delaying non-essential spend, drawing on agreed facilities) it has to extend that runway.

Directors who can speak confidently to their defensive interval, and explain the reasoning behind their liquid-asset definitions, generally present as more in control of working capital than those seeing the number for the first time in a lending conversation. It sits well alongside cash runway as part of a broader resilience picture rather than a pass-or-fail test on its own.