26 June 2026
The Financial Ratios a Small Business Owner Can Ignore, and the Six Numbers That Matter
Current ratio, quick ratio and debt to equity were built for lenders. Small business owners in South Africa need six operating numbers instead. Here they are.
A Durban printing company gets its ratio pack from the accountant. Current assets of R480 000 against current liabilities of R230 000 give a current ratio of 2.1, which looks comfortable. In the bank there is R60 000. Bills of R95 000, VAT included, fall due in the next 30 days, and two customers owe R150 000 that is now 70 days overdue. (This is a composite example with invented figures.)
The ratio is correct. It answers a question the owner is not asking. Most of the ratios in finance textbooks and accountants' reports were built so that a lender or an investor can compare one company with another. An owner in the first years of a business needs a shorter list of different numbers: how much cash there is, how long it lasts, and what is holding up the cash still to arrive.
The numbers
- A company has six months after its financial year-end to complete its annual financial statements (Companies Act 71 of 2008).
- At the end of the third quarter of the 2025/26 financial year, national and provincial departments had not paid 90 856 supplier invoices older than 30 days, worth R15.5 billion, up from R12.4 billion at the end of the second quarter. Provincial departments account for 98% of both figures (National Treasury, reported by SAnews on 1 July 2026).
- In the same quarter, departments paid 89 499 invoices after the 30-day deadline, worth R10.8 billion (National Treasury, reported by SAnews on 1 July 2026).
- PAYE, UIF and SDL are due by the 7th of the following month. VAT is usually due on the last business day of the month after each two-month period (SARS).
The ratios you were handed were built for lenders
The current ratio, quick ratio, debt to equity and return on equity exist so that a lender or an investor can compare companies using their annual accounts. Under the Companies Act 71 of 2008, a company has six months after its financial year-end to finish those accounts, so the statements you file can describe trading that started 18 months ago and ended six months ago.
That is a fair basis for a bank deciding whether to lend. It is a poor basis for an owner deciding this week whether to hire, chase a customer or pay a supplier early. Go through the ratios in your accountant's pack and ask which decision each one changes this month. Where the answer is none, leave it with the accountant.
If you are borrowing, the lender will read those ratios, so it is worth knowing what they see. Our article on small business funding in South Africa covers what applicants get wrong.
The current ratio can look fine while the cash runs out
The current ratio counts everything you are owed and everything on the shelf as if it were cash. In the printing company, the R480 000 of current assets is R60 000 in the bank, R300 000 owed by customers and R120 000 of paper and ink. Half of the customer money sits with two clients who are 70 days late, and the paper has not been printed yet.
Available cash gives a different answer. It is the bank balance less the tax and bills due in the next 30 days. For this company that is R60 000 less R95 000, a shortfall of R35 000. Anyone who had looked at the debtors list would have seen it coming. The owner who was reading the ratio did not.
Work out available cash before you look at anything else, and read it next to how long your customers take to pay. Our guide pages on available cash and debtor days show the arithmetic.
Margins are the ratios worth keeping
A business that keeps 7 cents of profit from every rand of sales loses more than a quarter of that profit if its gross margin slips by two cents and overheads stay where they are. Take a business with R200 000 of monthly sales, a 40% gross margin and R66 000 of fixed costs, including R20 000 for the owner. It makes R14 000. If the gross margin slips two points to 38%, gross profit falls by R4 000 and profit falls to R10 000, a drop of 29%.
Break-even moves too. It rises from R165 000 of sales a month to about R174 000. Nobody sends you that calculation with the ratio pack, and it takes two minutes.
Check gross margin every month against the price you set, and put your own pay into fixed costs when you work out break-even. The gross margin and break-even pages show how.
Six numbers that do the work
Six numbers answer the questions a small business owner has to answer every month, and only one of them is a ratio in the textbook sense.
| Number | The question it answers | How to work it out |
|---|---|---|
| Available cash | How much of the bank balance can I spend? | Bank balance less tax owed and bills due in 30 days |
| Runway | How many months does the cash last at today's pace? | Cash divided by monthly net burn |
| Debtor days | How long do customers take to pay? | Debtors divided by credit sales, times the days in the period |
| Gross margin | Does each sale leave enough to pay for everything else? | Revenue less cost of sales, divided by revenue |
| Break-even | How much must I sell before I make money? | Fixed costs, including your own pay, divided by gross margin |
| Paying yourself | Is the business paying me what I need? | Take-home you need less take-home you took |
None of these has a correct level. Twelve months of runway can be plenty for one business and very little for another, because it depends on how long your own fixes take. Read each number against its own history, against your plan and against the terms you gave your customers. Every number has a page in our financial management guide that shows the arithmetic and lists what a change could be revealing. The runway calculator is the quickest place to start.
What to ask your accountant for
The Companies Act 71 of 2008 requires annual financial statements. It does not require monthly management accounts, so you have to ask for them. Ask for:
- A monthly income statement and balance sheet, within a couple of weeks of month end.
- A debtors age analysis, which lists who owes you and how overdue each invoice is.
- A list of the tax due in the next 90 days.
- Sales by customer for the last 12 months.
If your accountant already sends a ratio pack, keep it. A bank or a buyer will ask for it one day. It is just not your monthly review. Our guides to understanding your financial statements and profit versus cash flow explain what each report contains and why profit and cash drift apart.
What to do this month
The six numbers can be worked out from a bank statement, a debtors list and a monthly income statement. This month:
- Work out available cash today: the bank balance less the tax and bills due in the next 30 days.
- Pull the debtors list and work out debtor days. Compare the answer with the payment terms on your invoices.
- Work out gross margin for each of the last three months and see whether it moved.
- Recalculate break-even with your own pay included in fixed costs.
- Put the same hour in your diary every month and work through the six numbers again, using the monthly review sheet.
The first pass takes an afternoon. After that, most of the work is updating figures you already have.
Frequently asked questions
Which financial ratios should a small business owner track?
Track gross margin, then add five numbers that are not textbook ratios: available cash, runway, debtor days, break-even and what you pay yourself. Current ratio, quick ratio, debt to equity and return on equity were built for lenders and investors, and they rarely change what an owner does this month.
Is the current ratio useful for a small business?
The current ratio compares what you expect to collect or sell within a year with what you owe within a year, so lenders use it. It can look healthy while cash is short, because unpaid invoices and unsold stock count as current assets. Available cash and runway show whether you can pay this month's bills.
Can a profitable business run out of cash in South Africa?
Yes, when customers pay late. National Treasury's third quarter report for 2025/26 showed 90 856 supplier invoices older than 30 days, worth R15.5 billion, unpaid by national and provincial departments, as reported by SAnews on 1 July 2026. A supplier waiting on those invoices can show a profit and still miss payroll.