Current ratio

The current ratio is current assets divided by current liabilities. It is a liquidity measure: it shows whether a business can cover the debts falling due in the next 12 months out of the assets it can turn into cash in the same period.

• Current assets: cash plus anything convertible to cash within a year (debtors, stock, work in progress).
• Current liabilities: debts due within a year (creditors, the current portion of loans, tax payable).

A current ratio of 1:1 means current assets just cover current liabilities. The reason builders care about it is that it is one of the two core tests in the Queensland Building and Construction Commission’s Minimum Financial Requirements (MFR), which a licensee must meet to hold or renew a Queensland licence. The current ratio must be at least 1:1. Fall below, and you fail the MFR on a liquidity basis. The other core test is Net Tangible Assets, a minimum scaled to your approved Maximum Revenue.

One trap: the QBCC does not simply take the ratio off your accounts. It disallows certain items (related-party loans, some intangibles, particular director assets) when it calculates, so the QBCC current ratio can come out lower than the one your accounting software shows.

For a builder the practical point is to watch the ratio ahead of renewal, not on the day. Drawing down cash, taking on short-term debt, or carrying related-party loans as current items can push you under 1:1. If you are close, an accountant can often restructure before the MFR report (convert short-term debt to long-term, or inject equity) so the licence stays clean. Keeping it healthy is part of ordinary cash-flow management.

Also known as: Working-capital ratio.

Category: Business / Financial ratios.

Related

• Builders licence renewal (QLD)
• Cash-flow management for residential builders

See also

• Gross margin
• Builders margin

References

• QBCC: Minimum Financial Requirements (verified 2026-06-01)

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Last updated: 2026-06-01. Verified: 2026-06-01. Quarterly review for currency.