Financial Health Check: Key Ratios And Metrics Every Business Owner Should Monitor

By Loran Armstrong, Rockwell Capital Group Founder & CEO, Forbes Council Member

Originally written for Forbes Finance Council

Managing a business without a clear handle on your financial data is like flying blind. You may be moving quickly, but you can’t see if you're on course or heading for turbulence.

Over the years, in my role as the COO of the financial and accounting services firm Rockwell Capital Group, I’ve worked alongside a wide range of entrepreneurs. No matter the industry, there’s one consistent trait among businesses that thrive long-term—disciplined financial oversight.

It’s common for business owners to base decisions purely on cash in the bank or defer financial reviews until tax season. That’s a risky way to operate.

Financial indicators shouldn’t just be numbers for your accountant; they should guide your day-to-day decisions. Below, I’ll walk you through the financial ratios I recommend tracking regularly and how they’ve made a tangible difference for my clients.

1. Gross Profit Margin (GPM)

Formula

(Revenue – Cost of Goods Sold) ÷ Revenue

Your Gross Profit Margin reveals how efficiently your business converts sales into actual profit, after accounting for the cost of production or delivery. I once worked with an online retailer that boasted impressive sales growth, up 40% annually, but their bottom line told a different story. A closer look at their GPM exposed that their pricing wasn’t keeping pace with increasing supplier costs. Adjusting their pricing model turned their profits around in a matter of months.

Pro Tip

Monitor GPM monthly. If it’s sliding, dig into your pricing strategy and supplier agreements.

2. Operating Cash Flow Ratio

Formula

Cash Flow from Operations ÷ Current Liabilities

This metric gauges whether your core business activities are generating enough cash to meet short-term obligations. It cuts through the noise of accounting accruals and shows real liquidity. I’ve seen companies collapse, not because of poor sales, but because they couldn’t turn receivables into cash fast enough to cover basic expenses like payroll and rent.

Pro Tip

Strive for a ratio above 1.0. Anything less is a signal that your operations may be running too tight.

3. Current Ratio & Quick Ratio

Formula

Current Ratio = Current Assets ÷ Current Liabilities Quick Ratio = (Current Assets – Inventory) ÷ Current Liabilities

Both current ratio and quick ratio measure your short-term financial resilience, but the quick ratio is stricter, excluding inventory from assets. In my experience, inventory-heavy businesses like wholesalers tend to overestimate their liquidity because they count unsold stock as an asset. That’s risky. I've helped clients use these ratios to negotiate better terms with suppliers or decide when to secure a credit line.

Pro Tip

Use both ratios to assess short-term health, especially before expansion or taking on debt.

4. Accounts Receivable Turnover

Formula

Net Credit Sales ÷ Average Accounts Receivable

This metric tells you how effectively you collect money owed. I had a B2B client doing seven figures annually that was perpetually cash-strapped. Turns out, their receivables turnover was painfully slow at around three times a year. After implementing stricter payment terms and follow-up processes, they doubled the turnover rate and freed up significant working capital.

Pro Tip

A low turnover means cash is stuck. Don’t just track revenue, track when you actually get paid.

5. Debt-To-Equity Ratio

Formula

Total Liabilities ÷ Shareholders’ Equity

This ratio helps you understand how leveraged your company is. In one case, a tech startup we worked with was chasing growth and piling on debt. Their D/E ratio climbed above 3.0. When investor funding dried up, their repayment obligations nearly choked the business. We restructured debt and shifted focus to profitability, allowing them to regain financial stability.

Pro Tip

A high ratio can signal risk to lenders and investors. Know your industry norms, but also your own limits.

6. Burn Rate (For Startups)

For early-stage companies, especially in tech and SaaS, burn rate is critical. It tells you how quickly you're spending your cash reserves. I advise founders to always know their "runway." That means how many months they can operate before needing new capital. In venture-backed companies I’ve consulted, clear burn rate tracking made the difference between proactive fundraising and emergency bridge loans.

Pro Tip

Burn rate is your startup heartbeat. Don’t just monitor it, build contingency plans around it.

Financial Metric Cadence

Too many business owners run these checks quarterly, if at all. That’s a mistake. In my firm, we recommend the following cadence:

• Weekly: Cash flow position, bank balance vs. forecast

• Monthly: GPM, receivables turnover, current ratio

• Quarterly: Operating cash flow, debt-to-equity, full financial review

Use a dashboard that updates automatically and integrates with your accounting software. The best businesses I’ve advised look ahead with data.

Final Thoughts

Financial ratios are decision making levers for accountants and CEOs alike.

I’ve sat across the table from business owners on the verge of crisis and those hitting inflection points. The difference is almost always in their understanding of their numbers.

If you’re a founder or operator, don’t abdicate this responsibility. Learn the key metrics. Make them part of your monthly leadership agenda. Financial clarity is a driver of sustainable growth.

Call (888) 676-7878 to schedule a consultation.