This month's Measure of the Month is a sign of the times. With so many companies on the brink of extinction, one common question is how long can they hang on? This measure answers that question.
The number of days a company can operate on existing cash balances.
Defensive Interval = [Cash Reserves] / [ (Annual Operating Expense) - (Depreciation)] X 365
Although this is typically not a measure healthy companies focus on, it may be useful for businesses on the brink of extinction. Running out of money to operate is analogous to being backed up against your own end-zone in football -- your main focus is scratching our a little room to operate. That said, if you are involved in a turn-around situation, before you can even begin thinking about the future, you have to secure the present. In such instances, you may want to encourage leadership to create a little financial breathing room. If that is your goal, this measure will do it.
WHO IS THIS MEASURE BEST SUITED FOR?
This measure is best suited for leaders involved in a turn-around situation who must secure the present before they can even begin thinking about the future, In such instances, this measure can encourage and reward managers who help create a little financial breathing room