Understanding the Basic Defense Interval: A Key Financial Metric
Definition & Meaning
The Basic Defense Interval (BDI) is a financial metric that indicates how many days a company can sustain its cash expenses without needing additional financing. This situation might arise if the company suddenly loses all its revenue streams. The BDI is calculated using the formula: (Cash + Receivables + Marketable Securities) divided by the daily cash outflow, which is determined by adding Operating Expenses, Interest, and Income Taxes, then dividing that total by 365 days.
Legal Use & context
The Basic Defense Interval is primarily used in financial and business law contexts. It helps assess a company's financial health and its ability to withstand economic downturns without external funding. This metric is important for various stakeholders, including investors, creditors, and legal professionals, when evaluating a company's risk profile. Users may find relevant legal forms and templates on platforms like US Legal Forms to assist in financial disclosures or assessments related to BDI.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A retail company has $100,000 in cash, $50,000 in receivables, and $30,000 in marketable securities. Its annual operating expenses, interest, and taxes total $365,000. The BDI would be calculated as follows:
BDI = ($100,000 + $50,000 + $30,000) / ($365,000 / 365) = 180 days.
Example 2: A tech startup with $200,000 in cash and $100,000 in receivables but no marketable securities has annual expenses of $600,000. The BDI would be:
BDI = ($200,000 + $100,000 + $0) / ($600,000 / 365) = 122 days.