A practical guide to the financial ratios tracked in the KPI Dashboard tab, what they mean, and when to worry.
These answer: "Can we pay our bills?"
Current Ratio = Total Current Assets ÷ Total Current LiabilitiesWhat it measures: Your ability to pay obligations due within 12 months using assets that can be converted to cash within 12 months.
| Value | Interpretation |
|---|---|
| > 2.0 | Comfortable — plenty of cushion |
| 1.5 - 2.0 | Healthy — standard for most businesses |
| 1.0 - 1.5 | Tight — watch carefully |
| < 1.0 | Danger — liabilities exceed liquid assets |
In the sample data: Current ratio is 3.32 by December, showing strong liquidity growth throughout the year (started at 2.41 in January).
When to worry: A declining current ratio, especially below 1.5, means you might struggle to pay bills on time. Consider slowing spending or accelerating collections.
Quick Ratio = (Current Assets - Inventory) ÷ Current LiabilitiesWhy exclude inventory? Inventory can't always be sold quickly at full value. The quick ratio shows what you could pay if you needed cash *tomorrow*.
| Value | Interpretation |
|---|---|
| > 1.5 | Very strong |
| 1.0 - 1.5 | Healthy |
| < 1.0 | May need to sell inventory or borrow to cover short-term obligations |
In the sample data: Quick ratio closely tracks current ratio because inventory is a small portion of assets. If you're a product business with significant inventory, the gap between these two ratios matters more.
These answer: "Are we making money efficiently?"
Gross Margin = Gross Profit ÷ Revenue × 100Measures pricing effectiveness and cost control on direct costs.
Industry benchmarks:
In the sample data: ~66% — healthy for a service/product hybrid business.
Net Margin = Net Income ÷ Revenue × 100The true bottom-line profitability after ALL costs.
Healthy ranges for small businesses:
In the sample data: 10-17% range, averaging ~13%.
Operating Margin = Operating Income ÷ Revenue × 100Profitability from core operations, before interest and taxes. This is the purest measure of business efficiency because it excludes financing decisions and tax situations.
These answer: "How well are we using our resources?"
AR Days = (Accounts Receivable ÷ Monthly Revenue) × 30What it measures: Average number of days between invoicing and getting paid.
| Value | Interpretation |
|---|---|
| < 30 days | Excellent collections |
| 30-45 days | Normal for B2B |
| 45-60 days | Slow — tighten payment terms |
| > 60 days | Problem — cash flow risk |
In the sample data: ~34 days on average. Slightly above the 30-day target but manageable.
How to improve:
Burn Rate = Total Operating Expenses (monthly)What it measures: How much cash you spend per month on operations, regardless of revenue.
Why it matters: If revenue drops to zero tomorrow, burn rate tells you how fast your cash reserves deplete.
Months of Runway = Cash Balance ÷ Monthly Burn RateIn the sample data: December burn rate = $41,750. Cash balance = $112,173. Runway = 2.7 months with zero revenue. This is a healthy buffer for an established business.
MoM Growth = (This Month Revenue - Last Month Revenue) ÷ Last Month Revenue × 100Target for small businesses: 3-5% month-over-month (43-80% annualized).
In the sample data: Volatile, ranging from -10.8% to +13.8%. This is common for service businesses where project timing creates lumpy revenue. Look at the trailing 3-month average for a smoother signal.
Recurring % = Recurring Revenue ÷ Total Revenue × 100Why it matters: Recurring revenue is predictable, reducing cash flow anxiety. Investors value it highly.
Targets:
In the sample data: 17-20%, indicating room to grow recurring revenue streams.
Run this monthly:
| Ratio | Healthy? | Action if Not |
|---|---|---|
| Current Ratio > 1.5 | ✅/❌ | Slow spending or accelerate collections |
| Net Margin > 10% | ✅/❌ | Cut expenses or raise prices |
| AR Days < 45 | ✅/❌ | Tighten payment terms |
| Burn Rate < 60% of Revenue | ✅/❌ | Reduce fixed costs |
| Revenue Growth > 0% (3mo avg) | ✅/❌ | Invest in sales/marketing |
A current ratio of 1.8 that's been improving for 6 months is better than a 2.5 that's been declining. Always look at the direction, not just the snapshot.
Don't compare a consulting firm's margins to a retailer's. Use these resources for benchmarks:
| KPI | Cell Formula |
|---|---|
| Gross Margin | ='01-PnL'!K13 |
| Net Margin | ='01-PnL'!X13/'01-PnL'!E13 |
| Current Ratio | ='03-Balance Sheet'!G6/'03-Balance Sheet'!G14 |
| Quick Ratio | =('03-Balance Sheet'!G6-'03-Balance Sheet'!G4)/'03-Balance Sheet'!G14 |
| AR Days | =('03-Balance Sheet'!G3/'01-PnL'!E13)*30 |
| Burn Rate | ='01-PnL'!T13 |
| Revenue Growth | =('01-PnL'!E13-'01-PnL'!E12)/'01-PnL'!E12 |
| Recurring % | ='04-Revenue'!M5/'04-Revenue'!M9 |
Get the full Small Business Financial Dashboard and unlock everything.
Get the complete guide with every chapter unlocked, including code samples, diagrams, and best practices.
Access all interactive tools with complete data, all workload profiles, and the full scenario library.
Downloadable source code, configuration files, and working examples from every chapter.
Free updates for life. Every new chapter, tool, and improvement included.