The current ratio shows the amount of current assets of a business in relation to its current liabilities and it helps determine financial viability. The minimum current ratio for a licensee is 1:1. Which means you must have at least $1 in current assets for every $1 of current liabilities.
The current ratio calculation also depends on your business structure:
- Individuals – personal current assets and current liabilities
- Partnerships – a combination of the partnership’s and the licensed partner’s current assets and current liabilities
- Trusts – a combination of the trust’s and the trustee’s current assets and current liabilities
- Companies – the current assets and current liabilities of the company
Our client, Geoff had been operating in the building industry for over 20 years when a major customer owing him almost $100,000 went into liquidation. This meant that their current ratio test may not have been satisfied.
Thankfully Geoff was proactive and contacted us. We were able to put in a place a strategy to ensure that he did meet the ratio requirement and then monitored it to ensure that he kept meeting it.
Note: These are real case studies of clients we’ve worked with, though we have changed their names to protect their privacy.
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