Business Health Check Calculator

This page takes one set of financial statements and returns a scored read across the four dimensions that determine whether a business is actually healthy: profitability, liquidity, leverage and efficiency. Most owners look at one of those, usually profit, and are then surprised by a problem that was visible in the other three all along. Enter the profit and loss and the balance sheet once and the calculator derives nine ratios, gives each a traffic light against an industry band you select, and combines them into a single score. The band matters: a 40% gross margin is strong for a wholesaler and poor for a consultancy, so the same number is graded differently depending on what you actually do. The efficiency ratios are where most New Zealand small businesses lose, because they measure the gap between doing the work and being paid for it, and that gap is funded entirely out of the owner's own cash. The score itself is the least interesting output on the page. What matters is which dimension is dragging, because a profitable business with a broken cash cycle needs completely different action from an unprofitable one sitting on cash. Every ratio links to a dedicated calculator that models it properly, so this page is the diagnosis and those pages are the treatment.

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Four Dimensions, Not One Number

Owners tend to run their business on profit alone. Profit is one of four things that determine whether a business survives, and it is not reliably the most urgent.

Profitability asks whether the work is worth doing. Liquidity asks whether you can pay what falls due in the next few months. Leverage asks whether the debt is safe. Efficiency asks how long your money is tied up between spending it and getting it back. A business can be excellent at three of those and fail because of the fourth.

Worked Example: Profitable, And Permanently Short

The defaults describe a trades business turning over $1,850,000.00 with a 40.00% gross margin and $142,000.00 of net profit, which is 7.68% of revenue. By most owners' measure that is a good year.

Net margin of 7.68% lands just under the 8% green threshold for a trades business, so profitability reads as watch rather than good. Liquidity is sound: a current ratio of 1.68 and a quick ratio of 1.10. Leverage is heavier than ideal at 1.19 debt to equity, but interest is covered 4.87 times, so the borrowing is comfortably affordable.

Efficiency is where it comes apart. Debtors sit at 48.5 days, inventory at 59.2 days, and suppliers are paid in 43.4 days. That gives a cash conversion cycle of 64.3 days. Every dollar of work is funded by the business for roughly two months before it turns back into cash. The overall score is 63%, and the entire deduction comes from that one dimension.

The Cash Conversion Cycle Explains The Feeling

Plenty of owners describe being profitable on paper and permanently short in the bank. The cash conversion cycle is usually the explanation, and it is arithmetic rather than mismanagement.

The business buys or produces stock and holds it for 59.2 days. It invoices and waits another 48.5 days. It has, meanwhile, paid its own suppliers after 43.4 days. The 64.3 day gap between money going out and money coming in has to be funded by someone, and that someone is the business owner, either from retained cash or from an overdraft.

Growth makes this worse, not better. Every additional sale extends the funding requirement before it delivers any cash, which is why fast-growing profitable businesses run out of money. Our Overtrading Risk Calculator puts a dollar figure on exactly that.

Debtor Days Are The Cheapest Money You Will Ever Raise

On the worked example, pulling debtor days from 48.5 to 30 would release $93,945.21 of cash. No extra sales, no borrowing, no new equity, no discount given away.

That figure is almost always larger than owners expect and almost always easier to move than margin. The levers are unglamorous: invoice the day the work is finished rather than at month end, state terms on the invoice rather than assuming them, follow up at seven days rather than thirty, take deposits on larger jobs, and stop treating a chronically slow payer as a customer worth keeping. Our Days Sales Outstanding Calculator models what specific changes are worth.

Read The Bands With Judgement

No New Zealand authority publishes official thresholds for these ratios. The bands here are commercial conventions, adjusted for the cost structure you select, and they are prompts rather than verdicts.

Two readings deserve particular care. A very high current ratio is not automatically good: it can mean cash sitting idle or stock that is not selling. And a low debt to equity ratio in a business with poor interest cover is worse than a high one with strong cover, because the question that matters is affordability rather than size. Where two ratios in the same dimension disagree, the one measuring cash is usually telling you more than the one measuring balance.

Work The Weakest Dimension

The score is a summary. The action sits in whichever dimension is red.

If profitability is weak, the problem is pricing or job costing, and our Minimum Price Calculator and Job Costing Calculator address it. If liquidity is weak, our Business Cash Buffer Calculator sets a target reserve. If leverage is weak, our Business Debt Restructure Calculator models the options. If efficiency is weak, as here, start with debtor days and stock.

Every Ratio On This Page, In Detail

• Gross Profit Margin Calculator and Net Profit Margin Calculator: the two profitability measures.
• Current Ratio Calculator and Quick Ratio Calculator: short-term solvency with and without stock.
• Debt to Equity Ratio Calculator and Debt Service Coverage Ratio Calculator: how much debt, and whether it is affordable.
• Days Sales Outstanding Calculator and Cash Conversion Cycle Calculator: the efficiency dimension in detail.
• Inventory Turnover Calculator and Working Capital Calculator: stock and the money tied up in it.
• Return on Equity Calculator and EBITDA Calculator: returns to the owner and the earnings a buyer prices from.
• Altman Z-Score Calculator: a single distress score built from several of these ratios.