CFA Level I · CFA Level I Exam · Working Capital and Liquidity
A company has cash of 90,000, marketable securities of 60,000, receivables of 150,000 and daily cash expenses of 3,000. Using the defensive interval ratio based on these liquid assets, the number of days the company can meet expenses without other inflows is closest to:
The defensive interval is about 100 days. Liquid assets total 300,000 (cash, marketable securities and receivables), and dividing by daily cash expenses of 3,000 gives 100 days. Excluding receivables would give only 50 days, which understates the measure.
- A50 days
- B100 daysCorrect
- C150 days
Explanation
Liquid assets = 90,000 + 60,000 + 150,000 = 300,000. Defensive interval = 300,000 / 3,000 = 100 days. Using only cash and securities (150,000) would give 50 days, which wrongly omits receivables.
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