Quick Reference: All 25 Ratios at a Glance
| # | Ratio | Category | Formula (simplified) | Target / Benchmark |
|---|---|---|---|---|
| 1 | Current Ratio | Liquidity | Current Assets ÷ Current Liabilities | 1.5 to 2.0+ |
| 2 | Quick Ratio | Liquidity | (Cash + AR) ÷ Current Liabilities | 1.0+ |
| 3 | Cash Ratio | Liquidity | Cash ÷ Current Liabilities | 0.5 to 1.0 |
| 4 | Working Capital | Liquidity | Current Assets − Current Liabilities | Positive |
| 5 | Gross Profit Margin | Profitability | Gross Profit ÷ Revenue × 100 | Varies by industry |
| 6 | Net Profit Margin | Profitability | Net Income ÷ Revenue × 100 | 5 to 20% (industry-dependent) |
| 7 | EBITDA Margin | Profitability | EBITDA ÷ Revenue × 100 | 15 to 25% for SMBs |
| 8 | Return on Assets (ROA) | Profitability | Net Income ÷ Total Assets × 100 | 5 to 20% |
| 9 | Return on Equity (ROE) | Profitability | Net Income ÷ Owner's Equity × 100 | 15 to 30%+ |
| 10 | Operating Profit Margin | Profitability | Operating Income ÷ Revenue × 100 | 10 to 20% |
| 11 | AR Turnover | Efficiency | Revenue ÷ Average AR | Higher = better |
| 12 | Days Sales Outstanding (DSO) | Efficiency | 365 ÷ AR Turnover | Net terms + 10 days or less |
| 13 | Inventory Turnover | Efficiency | COGS ÷ Average Inventory | Varies widely by industry |
| 14 | Days Inventory Outstanding (DIO) | Efficiency | 365 ÷ Inventory Turnover | Industry-dependent |
| 15 | AP Turnover | Efficiency | COGS ÷ Average AP | Context-dependent |
| 16 | Days Payable Outstanding (DPO) | Efficiency | 365 ÷ AP Turnover | Match or exceed your payment terms |
| 17 | Cash Conversion Cycle (CCC) | Efficiency | DSO + DIO − DPO | Lower = better; negative is excellent |
| 18 | Asset Turnover | Efficiency | Revenue ÷ Total Assets | Varies: services 1.5 to 3x, mfg 0.5 to 1.5x |
| 19 | Revenue per Employee | Efficiency | Revenue ÷ Employee Count | Varies by sector |
| 20 | DSCR | Leverage | EBITDA ÷ Annual Debt Payments | 1.25x+ (SBA minimum) |
| 21 | Debt-to-Equity | Leverage | Total Liabilities ÷ Owner's Equity | Below 3.0 (SBA guideline) |
| 22 | Debt-to-Assets | Leverage | Total Liabilities ÷ Total Assets | Below 0.70 |
| 23 | Equity Ratio | Leverage | Owner's Equity ÷ Total Assets | 0.30 to 0.50+ |
| 24 | Interest Coverage Ratio | Leverage | EBIT ÷ Interest Expense | 3x+ (comfortable); 1.5x minimum |
| 25 | Fixed Charge Coverage | Leverage | EBIT ÷ (Interest + Lease Payments) | 1.25x+ |
Category 1: Liquidity Ratios
Liquidity ratios measure a business's ability to pay short-term obligations. They answer: "If bills came due today, could we pay them?" Lenders check these before extending any credit.
Current Ratio
Measures the ability to pay short-term debts with short-term assets. A ratio of 2.0 = $2 available for every $1 owed in the next 12 months.
Quick Ratio (Acid Test)
More conservative than current ratio: excludes inventory (harder to liquidate quickly). Shows whether the business can cover obligations without selling inventory.
Cash Ratio
The most conservative liquidity test: only counts actual cash, not receivables or inventory. Shows absolute worst-case short-term paying ability.
Working Capital ($)
The dollar amount of liquidity cushion. Not a ratio: an absolute dollar figure. Negative working capital = immediate financial stress, regardless of profitability.
Category 2: Profitability Ratios
Profitability ratios measure how efficiently a business generates profit from its revenue and assets. They answer: "How well does this business turn revenue into profit?" These are primary metrics on every lender's scorecard.
Gross Profit Margin
How much revenue survives after direct production costs. The higher the gross margin, the more flexibility you have to cover overhead and generate profit.
*Restaurant "gross" typically food cost only; including labor flips this dramatically
Net Profit Margin
True bottom-line profitability after all costs. The net margin answers: "For every dollar of revenue, how many cents become profit?" The most comprehensive profitability measure.
EBITDA Margin
Operating profitability before financing costs, taxes, and non-cash charges. The preferred metric for comparing businesses regardless of capital structure or tax situation.
Return on Assets (ROA)
How efficiently the business uses its assets to generate profit. Asset-heavy businesses (manufacturing, construction) typically have lower ROA than asset-light businesses (consulting, SaaS).
Return on Equity (ROE)
How much profit is generated for every dollar the owner(s) have invested. High ROE is attractive to investors and signals efficient use of equity capital. Impacted by debt levels.
Operating Profit Margin (EBIT)
Profitability from core business operations: before interest expense and taxes. Reveals the business's inherent profitability separate from its capital structure and tax situation.
Category 3: Efficiency Ratios (Activity Ratios)
Efficiency ratios measure how well the business converts its assets into revenue and manages the cash conversion cycle. They answer: "How fast does money move through the business?" These ratios are critical for understanding actual cash flow dynamics: a business with high efficiency collects faster, pays strategically, and minimizes the time cash is tied up.
Accounts Receivable (AR) Turnover
How many times AR is collected in a year. Higher = faster collection = better cash flow. If AR turnover is 6, you collect your entire receivables balance roughly every 2 months.
Days Sales Outstanding (DSO)
or: AR ÷ (Revenue ÷ 365)
The average number of days it takes to collect payment after making a sale. If you offer Net-30 terms, a DSO of 45 means customers pay 15 days late on average: a cash flow leak.
Inventory Turnover
How many times inventory is sold and replaced in a year. Very industry-specific. A grocery store turns inventory 25x+. A jeweler may turn 1 to 3x. Low turnover relative to industry = too much cash tied up in slow-moving goods.
Days Inventory Outstanding (DIO)
Average number of days inventory sits before being sold. Lower DIO = faster inventory movement = less cash tied up. Higher DIO = stale inventory, storage costs, and cash flow drag.
AP Turnover & DPO
DPO = 365 ÷ AP Turnover
Days Payable Outstanding = how long you take to pay suppliers. Higher DPO = you hold cash longer = positive for cash flow. But too high = strained supplier relationships. Sweet spot: use your full terms without exceeding them.
Cash Conversion Cycle (CCC)
The number of days between paying cash for inventory/inputs and collecting cash from customers. The king of efficiency metrics. Negative CCC (like Amazon or Costco) means suppliers fund your operations.
Asset Turnover
Revenue generated per dollar of assets. Higher = more efficient use of the asset base. Asset-heavy industries (manufacturing, construction) have lower ratios than service or software businesses.
Revenue per Employee
Productivity measure showing how much revenue each employee generates. Highly variable by industry. Useful for benchmarking labor efficiency and staffing decisions.
Category 4: Leverage Ratios
Leverage ratios measure the amount of debt a business carries relative to its equity and earnings. They answer: "Can the business service its debt obligations, and is it over-leveraged?" These are the ratios SBA lenders and banks scrutinize most carefully.
Debt Service Coverage Ratio (DSCR)
(interest + principal)
The single most important ratio for any loan application. Measures how many times EBITDA covers total annual debt payments. 1.25x means earnings are 25% above the amount needed to service all debt.
Debt-to-Equity Ratio
How many dollars of debt exist per dollar of owner equity. Higher ratio = more leveraged = more risk for lenders. The SBA uses this to evaluate whether the owner has "skin in the game."
Debt-to-Assets Ratio
What percentage of the business's assets are financed by debt (vs. equity). A ratio of 0.60 means 60% of assets are debt-financed; 40% are equity-financed. Above 0.80 is generally considered high leverage.
Equity Ratio
The inverse of debt-to-assets. What percentage of assets are owned outright (equity-financed). Higher equity ratio = less leverage = more financial cushion = more favorable to lenders.
Interest Coverage Ratio
How many times operating income covers the interest expense on debt. An interest coverage of 3x means EBIT is 3x the interest owed. Below 1.5x means earnings barely cover interest alone: principal payments are separate.
Fixed Charge Coverage Ratio
Similar to interest coverage but includes lease obligations: important for businesses with significant rent or equipment lease commitments. SBA often uses a variation of this as an alternative DSCR calculation.
Suggested citation: T.A.G. Business Funding. (2026). 25 Key Small Business Financial Ratios: Formulas, Benchmarks & Explanations. funding.towersassetgroup.com/small-business-financial-ratios