SUE HIRST A good measure of liquidity is ‘Current Ratio’. This is the result of dividing current assets by current liabilities. It shows the number of times current liabilities are covered by current assets. Banks look closely at this ratio when lending, as they want confidence about the business’ ability to make loan repayments and business owners need to know this for their own peace of mind. Here’s an example of current ratio calculation: CURRENT ASSETS ACCOUNTS RECEIVABLES INVENTORY / WORK IN PROGRESS TOTAL CURRENT ASSETS CURRENT LIABILITIES ACCOUNTS PAYABLES OVERDRAFT Photo Credit: Recha Oktaviani (Unsplash) SUE HIRST CF0-ON-CALL CFO-ON-CALL is a team of Financial and Business Advisors who work with open-minded people committed to business growth and achieving success. For a no obligation FREE chat about your profit growth opportunities please call us on 1300 36 24 36 or visit www.CFOonCall.com.au Ratio Calculation: $250,000/$140,000 = 1.79 Meaning for every dollar of current liabilities you’ve got $1.79 of current assets to cover it. Keep a close eye on this ratio, to identify the trend and work at improving the factors affecting it. These are the key areas you need to focus on if things are feeling a bit tight in business or you just want some inspiration to change and improve. The EASY way to make your business Financially Fit Without the hassle of doing an accounting degree! Order this FREE ‘super-sized’ eBook for Business Owners … Packed with pages of helpful – easy to read financial tips – all in plain English. The Financial Fitness Plan – An amazing resource for businesses who want to boost in-house financial performance – no expensive accountants fees. You’ll learn small ‘tweaks’ that make a BIG Difference to Sales, Profit and Cash-flow. This book explains – Profit & Cash-flow tips, Budgeting & Costing, Pricing, Overheads management, Stock & Supplier issues, Quoting-Tendering, Staff Productivity, Smart Systems, KPIs (Key Performance Indicators), Growth, Business and Exit Planning. It’s a 1 hour read – but could be the most valuable time you’ll ever spend on your business! Free for business owners and key staff. Request by email to: [email protected] Include your name and business email address please. WWW.IMAGEMAGAZINE.COM.AU OCT/NOV 2022 47 SHORT TERM LOAN PAYMENTS (12 MONTHS) TOTAL CURRENT LIABILITIES $100,000 $150,000 $250,000 $50,000 $50,000 $40,000 $140,000
