Which ratios matter most monthly?

Cash, current/quick, DSO/DIO/DPO cash cycle, gross margin, EBITDA margin, and interest coverage. The rest quarterly or on trigger.

What is a healthy current ratio?

Contextual: 1.5-2.0 for many SMBs, higher for inventory-heavy, lower for negative-working-capital SaaS with deferred revenue. Trend and covenants beat rules of thumb.

How do you calculate cash conversion cycle?

DSO + DIO − DPO. Shorten by accelerating collections, trimming inventory, and negotiating terms without harming supply.

Which ratios do lenders test?

Leverage, DSCR, interest coverage, minimum liquidity, and sometimes net-worth floors — defined precisely in credit agreements, not textbooks.

REPORTING

Financial Ratios Cheat Sheet 2026: Liquidity, Profitability, and Covenant Math

BATO Editorial Team September 02, 2026 2 min read

Core Tables

Liquidity	Formula	Watch
Current	CA / CL	<1.2 flag
Quick	(Cash + AR) / CL	Inventory distortion
Cash	Cash / CL	Payroll coverage

Efficiency	Formula	Tie
DSO	AR / revenue × 365	See Collections
DIO	Inv / COGS × 365	See Inventory
DPO	AP / COGS × 365	See AP Fraud

Profitability	Formula	Note
Gross margin	(Rev − COGS) / Rev	Mix matters
EBITDA margin	EBITDA / Rev	Add-back discipline — see EBITDA
ROE	Net / equity	Leverage effect

Pair with Financial Statement Analysis, Cash-Flow Analysis, Cash Forecast, and Going Concern.

Covenant Math

Use agreement definitions, not generic formulas. Model headroom monthly in Month-End Close and link to Debt.

Retain calc packets per PBC and Audit Procedures.

Worked Example: Two Companies, Same Revenue, Different Health

Both do $10m revenue. Company A: AR $1.6m, inventory $2.2m, AP $0.9m, COGS $6m. Company B: AR $0.7m, inventory $0.4m, AP $1.1m, COGS $6m.

Metric	A	B	Read
DSO	58 days	26 days	B collects twice as fast — see Collections
DIO	134 days	24 days	A carries 4+ months of stock — obsolescence risk, see Inventory
DPO	55 days	67 days	B negotiates better terms without strain
Cash conversion cycle	137 days	−17 days	B is funded by suppliers; A funds its customers + warehouse

Same P&L, opposite liquidity. A needs a revolver to operate; B self-finances growth. This is why lenders price on the cash cycle, not just EBITDA — link the analysis to Debt headroom and Going Concern memos.

Solvency and Returns (Beyond Liquidity)

Ratio	Formula	Healthy signal
Debt / EBITDA	Total debt / EBITDA	<3× for most SMBs; covenant-defined
Interest coverage	EBIT / interest	>3× comfortable; <1.5× distress watch
DSCR	Operating cash flow / debt service	>1.25× typical covenant floor
ROE	Net income / equity	Read with leverage — high ROE from thin equity is fragility, not strength
ROA	Net income / assets	Compares asset efficiency across peers
Gross margin trend	Quarterly, by segment	Mix shifts explain more than totals

Segment the margins: blended 45% gross margin hiding a 60% SaaS line and a 20% services line misleads pricing decisions. Reconcile ratio inputs to the Month-End Close binder so the board pack and the audit file agree — see PBC.