Financial ratios with dollar balances: what a CFO reviews every month

Financial ratios of a company with dollar balances can worsen from one month to the next without the business having sold, collected or paid anything differently. The exchange rate only has to move: dollar assets and liabilities are remeasured into local currency and the quotients of the balance sheet change. A CFO who does not separate that effect risks fixing a problem that is one of measurement.

In Soulbit Academy we follow the CFO Kit, a series on how to read the financial statements of a company that operates in two currencies. After the income statement in two currencies, this instalment walks through the financial ratios reviewed each month and what the exchange rate does to each one. Soulbit does not replace the accountant or the statutory auditor.

Financial ratios: what they are and which ones a CFO reviews monthly

Financial ratios are quotients of two figures from the financial statements that summarise one dimension of the business: liquidity, leverage, profitability or activity. A CFO reviews them every month because a single balance sheet number means little without a reference, and a ratio compares each figure with another that gives it meaning.

Accounting standards do not define the ratios. The formulas are analysis practice and vary between companies, lenders and analysts, so each company should document its exact definition and keep it constant. The figures behind them come from the framework the company reports under: in Colombia, for instance, Decree 2420 of 2015 sets the technical framework, with IFRS or IFRS for SMEs depending on the group.

Family	Ratio	Formula	Question it answers
Liquidity	Current ratio	Current assets / current liabilities	Whether short-term assets cover short-term debts
Liquidity	Quick ratio	(Current assets minus inventory) / current liabilities	Whether debts are covered without selling stock
Liquidity	Cash ratio	(Cash and equivalents) / current liabilities	How much of immediate liabilities cash covers
Leverage	Debt to assets	Total liabilities / total assets	How much of the assets is financed by debt
Leverage	Debt to equity	Total liabilities / equity	What creditors contribute per unit of owners' capital
Leverage	Interest coverage	Operating profit / interest expense	Whether operations pay the interest
Profitability	Gross, operating and net margin	Corresponding profit / revenue	What remains of each unit sold at each level
Profitability	ROA and ROE	Net income / total assets; net income / equity	Return on assets and on owners' capital
Activity	Days sales outstanding (DSO)	Receivables / sales x days in period	How many days a sale takes to be collected
Activity	Inventory turnover	Cost of sales / average inventory	How many times inventory renews in the period
Activity	Days payables outstanding	Payables / cost of sales x days in period	How many days the company takes to pay

How many financial ratios should a CFO review each month?

A CFO should review few, stable and comparable ratios: two or three per family are enough. More ratios do not improve the decision, they add noise. What matters is that the definition does not change from one month to the next and that each ratio has an owner who explains why it moved.

Liquidity ratios: current ratio, quick ratio and cash ratio

Liquidity ratios measure whether a company can pay its short-term obligations, and the three most used differ in which assets count in the numerator. The current ratio includes all current assets. The quick ratio excludes inventory. The cash ratio counts only cash and equivalents.

The quick ratio is the one lenders ask for most, because inventory can take time to sell or sell at a discount. A company with a high current ratio and a low quick ratio has its liquidity trapped in stock. The cash ratio is the most conservative and shows what could be paid today without collecting or selling anything.

No liquidity ratio has a universally correct value. A distributor with fast collection and 60-day supplier terms can run a current ratio that would worry a company with slow receivables. Reference points depend on the industry, the collection cycle and the terms agreed with banks and suppliers. Compare against your own history and against the covenants of your loans.

One classification decision affects all three ratios: what counts as cash and equivalents. If the company holds stablecoin balances, their presentation is for the accountant to decide under the applicable framework; the article on accounting for USDC under IFRS covers the criteria under discussion.

Leverage ratios and debt coverage

Leverage ratios measure how much of the company is financed by debt and whether operations can sustain it. The most direct is total liabilities over total assets. Debt to equity expresses the same against owners' capital. Interest coverage compares operating profit with finance cost.

A company can have moderate leverage and weak coverage if operating profit is low, and the reverse. The CFO reads them together. None of them captures the maturity schedule: two companies with the same ratio can owe in 12 months or in five years. The cash flow forecast for foreign currency revenue places by date what comes in and goes out in each currency.

Is high leverage always a problem?

High leverage is not always a problem: it is one when interest coverage is low or maturities are concentrated, and it can be reasonable when operations generate stable cash. The ratio describes structure, not risk. The thresholds lenders set in their covenants usually weigh more than any general reference.

Profitability and activity ratios

Profitability ratios measure the return a company generates, and activity ratios measure how fast its working capital turns. Gross, operating and net margins come from the income statement. ROA divides net income by assets and ROE divides it by equity, so a high ROE should be read next to leverage.

Activity ratios translate operations into days. DSO shows how long a sale takes to be collected, inventory days how long stock stays on hand and payables days how long the company takes to pay. Combined they give the cash conversion cycle: receivable days plus inventory days minus payable days. The longer the cycle, the more working capital the company needs.

That tied-up capital has a cost, discussed in the cash conversion cycle and the cost of idle cash. Each day of DSO is worth annual sales divided by 365, so cutting five days frees five times that amount in cash without a single extra sale.

How the exchange rate distorts each financial ratio when you hold dollar balances

The exchange rate distorts financial ratios because it converts monetary items held in dollars at the closing rate while local-currency items do not move. IAS 21 requires monetary items, such as cash, receivables, payables and loans, to be remeasured at the closing rate, with the difference recognised in profit or loss. Non-monetary items such as inventory and equipment stay at the transaction rate.

That asymmetry produces the effect. If the company holds more dollar monetary assets than dollar liabilities, a weaker local currency raises the numerator of liquidity ratios more than the denominator. If dollar assets and liabilities offset each other, structure ratios barely move, but the exchange difference still runs through profit or loss and moves margins and ROE.

Take a fictitious Colombian subsidiary of a US parent whose peso weakens from 4,000 to 4,200 per dollar. Every figure in this example is an illustrative assumption: none is market data or belongs to any Soulbit client. The subsidiary holds 50,000 dollars in cash, 300,000 in receivables, owes suppliers 100,000 and has a long-term loan of 100,000. The rest of the balance sheet is in pesos and does not change. Annual sales are 9,000 million pesos and net income excluding exchange effects is 450 million.

Ratio (assumption)	Rate 4,000	Rate 4,200	Reading
Current ratio	2.00	2.02	Rises because current dollar assets exceed current dollar liabilities
Quick ratio	1.40	1.43	Same mechanism: liquidity looks better without any collection
Cash ratio	0.33	0.34	Dollar cash is worth more pesos
Debt to assets	31.7%	32.0%	Moves slightly: the loan grows in pesos as well as the assets
Debt to equity	0.46	0.47	Structure looks stable although there is an open net position
DSO	64.9 days	67.3 days	Looks like slower collection, but it is dollar receivables remeasured
Net margin	5.0%	5.2%	A 30 million peso exchange gain before tax lifts income to 471 million at an assumed 30% tax
ROE on opening equity	11.0%	11.5%	The return rises half a point with no change in operations

The table teaches three things. The net dollar position, here 150,000 dollars of monetary assets over liabilities, is what moves the ratios. Structure ratios can stay still while margins and ROE move. And DSO worsens on paper through remeasurement alone. In this example the local currency weakens; with the opposite move every direction reverses, and a prudent CFO does not celebrate an improvement that comes only from the exchange rate.

A second layer applies when the subsidiary reports to its parent in dollars. IAS 21 translates assets and liabilities at the closing rate and income and expenses at the rates of the transaction dates, or an average as an approximation. Liquidity ratios, built from items translated at one rate, stay equal after translation, but ratios mixing balance sheet and income items, such as DSO, ROA and ROE, shift. The monthly mechanics are in functional versus presentation currency at the monthly close.

How do you read financial ratios without the exchange rate effect?

You recalculate them at a constant exchange rate, as you do with income statement margins. Remeasure the dollar items at the previous month's rate or the budget rate, recompute the ratios and present the bridge between the reported and the adjusted ratio. This is an internal management measure, not a figure from audited statements.

The CFO's monthly dashboard: what to look at and in what order

A monthly ratio dashboard works when it is short, uses fixed definitions and shows each ratio in two versions, reported and adjusted for the exchange rate. A sensible reading order starts with what can stop the business and ends with what improves it.

1. Liquidity: cash ratio, quick ratio and current ratio, with the net dollar position beside them.
2. Leverage: debt to assets, interest coverage and maturities of the next 12 months.
3. Activity: DSO, inventory days, payables days and the cash conversion cycle.
4. Profitability: gross and operating margin at reported and constant rates, and ROE.

When a ratio moves, the CFO asks three questions in order: did the numerator change, did the denominator change, or did the exchange rate change. The last is the one most often skipped. Setting in advance how large a net dollar position the company tolerates is a policy matter; how much cash should be held in dollars frames that decision.

What Soulbit delivers today and what stays with the accountant

Soulbit V1 delivers company balances in stablecoins (USDC and USDT) and in fiat (USD, EUR and GBP) with institutional custody, conversion by eOTC quote on request, a local banking rail in Colombia only, payment links, collection QR codes and recurring or batch payroll. Each movement carries its date, amount and reference, and the history can be exported for reconciliation.

That history helps document the dollar balance and the date of each collection or payment feeding the numerator of the ratios. What Soulbit does not do: it does not calculate financial ratios, does not produce automatic accounting reports, does not prepare financial statements and does not classify items as cash and equivalents. There is no API or SDK to connect accounting software in V1, and export is manual. It offers no currency hedging or yield on balances. The ratios, their definition and their presentation belong to the accountant.