The Cash Flow Adequacy Ratio: Can Your Operating Cash Cover Debt, Capex, and Owner Draws?
Divide operating cash flow by debt principal, capex, and owner draws: above 1.0 the business funds itself, below it the gap comes from borrowing or reserves.
#financial-ratios
Financial Ratios
Key financial ratios like ROA, ROE, and profitability metrics for measuring business performance
Debt-to-Asset Ratio: How Much of Your Business Do You Actually Own?
Divide total liabilities by total assets: under 0.5 is healthy, over 0.7 is fragile, and lenders recompute it after adding your loan.
Inventory Turnover Ratio for Small Retailers: How to Calculate Days Sales in Inventory, Spot Dead Stock, and Free Cash Trapped on Shelves
Inventory turnover is COGS divided by average inventory — apparel typically turns 4 to 6 times a year. Track it quarterly to spot dead stock and free cash.
Free Cash Flow Conversion: The Ratio That Tells You Whether Your Profit Is Actually Cash
Healthy FCF conversion runs near 80% of EBITDA; below 50% means receivables, inventory or CapEx are eating profit. Formula, benchmarks and fixes.
Capital Turnover Ratio Explained: How Many Sales Dollars Each Dollar of Capital Produces
Capital turnover is net sales divided by average capital employed — a 3.0 ratio means each dollar of capital produced three dollars of sales that year.
The Three Liquidity Ratios Lenders Check Before Approving Your Loan
Lenders judge a loan application on three numbers — current ratio (1.5+ adequate, under 1.0 a red flag), quick ratio above 1.0, and a DSCR of at least 1.15x for SBA 7(a) and 504 loans.
The Beneish M-Score: How to Spot Earnings Manipulation Before You Lend, Invest, or Acquire
The Beneish M-Score combines eight financial-statement ratios into one score that flags likely earnings manipulators above −1.78; here is what each variable catches and how to use it in lending and acquisition due diligence.
The Defensive Interval Ratio: How Many Days Could Your Business Survive With Zero Revenue?
The defensive interval ratio divides cash, marketable securities and net receivables by daily cash operating expenses to state your runway in days. Half of small businesses hold under 15 buffer days — here is how to compute and lengthen yours.
Bad Debt Reserve Accounting: Allowance Method vs. Direct Write-Off, and the Collection KPIs That Keep Your Reserve Honest
GAAP requires the allowance method while the IRS requires direct write-off under Section 166, so most accrual-basis businesses run both and reconcile the difference. This guide gives the journal entries for each, three ways to estimate the reserve (percentage of credit sales, an aging schedule, specific identification), and the five collection KPIs — DSO, CEI, current-bucket share, bad debt to sales, and average days delinquent — that reveal when a reserve has drifted from reality.
Interest Coverage Ratio: What Your Loan Covenant Measures and How to Cure a Breach Before It Triggers Default
The interest coverage ratio (EBIT ÷ interest expense) is the loan covenant small businesses trip most often, with minimums typically set between 2.5x and 4.5x and tested quarterly on trailing twelve months. This guide explains how lenders define EBITDA and interest expense, what a breach triggers (default rate, frozen draws, cross-defaults), and the cure sequence in cost order — early covenant reset, waiver, amendment, equity cure, forbearance — plus the bookkeeping that keeps your ratio visible before the bank sees it.
DSCR Loans, Explained: Qualify for Rental Property Financing on the Property's Cash Flow, Not Your W-2
A DSCR loan approves an investment property on its rental income instead of the borrower's tax returns — monthly rent divided by PITIA, with approvals typically near a 1.0 ratio, rates around 6.5%–8%, 20–30% down, and 3–6 months of reserves. Here is the math lenders run, what the loan costs, and the per-property records that decide the refinance.
The Sloan Ratio: How to Tell If Your Profits Are Real Cash or Just Accounting Accruals
The Sloan ratio divides the gap between net income and operating cash flow by total assets to show how much reported profit is accruals rather than cash. Includes the formula, the ±10% caution bands, and a worked example of a profitable agency where only 40 cents of each profit dollar arrived as operating cash.