Overall Liquidity Ratio in Australia 2025: Why It Matters for Business

Liquidity can make or break a business—especially in a year like 2025, when economic uncertainty and regulatory changes are rewriting the rules for Australian companies. The overall liquidity ratio is emerging as a critical metric for business owners and financial managers who want to keep their operations resilient and agile. But what exactly is this ratio, and how does it fit into the broader financial landscape this year?

What Is the Overall Liquidity Ratio—and Why Is It Trending in 2025?

The overall liquidity ratio (sometimes called the current ratio) measures a business’s ability to cover its short-term liabilities with its short-term assets. It’s calculated by dividing current assets by current liabilities. The higher the ratio, the more capable a company is of meeting its debts as they fall due.

• Current Assets: Cash, receivables, inventory, and other assets expected to be converted to cash within 12 months.
• Current Liabilities: Debts and obligations payable within the same timeframe.

In 2025, the focus on liquidity has intensified. The Australian Prudential Regulation Authority (APRA) has continued to stress-test banks and corporates alike, emphasizing the importance of robust liquidity positions amid global volatility and domestic policy shifts. Many lenders and investors now scrutinise the overall liquidity ratio more closely before extending credit or support.

How to Calculate and Interpret the Overall Liquidity Ratio

Let’s take a practical example. Suppose a mid-sized Melbourne logistics firm reports:

• Current Assets: $2.5 million
• Current Liabilities: $1.6 million

Their overall liquidity ratio is:

$2,500,000 / $1,600,000 = 1.56

This means that for every dollar of short-term debt, the company has $1.56 in assets it can draw upon. In the context of 2025, where a ratio between 1.2 and 2.0 is considered healthy for most industries, this business is in a strong position.

• A ratio below 1 signals potential trouble—there may not be enough assets to cover debts.
• A ratio well above 2 can indicate underutilised assets or inefficient capital allocation.

Industry benchmarks have shifted this year. For instance, many retail businesses have seen their ideal range rise slightly, reflecting supply chain uncertainties and the need for larger cash buffers. Meanwhile, technology firms with recurring revenue models may operate comfortably with slightly lower ratios due to predictable cash flows.

Using the Liquidity Ratio to Guide Financial Decisions in 2025

The overall liquidity ratio isn’t just for reporting to banks—it’s a tool to guide better decisions. Here’s how businesses are leveraging it right now:

• Loan and Credit Applications: Banks are scrutinising liquidity ratios more than ever, especially for sectors affected by 2024’s rate hikes and ongoing cost pressures.
• Supplier Negotiations: Demonstrating strong liquidity can improve your terms and credibility, or help negotiate discounts for early payment.
• Strategic Planning: Businesses with higher liquidity ratios are better positioned to seize growth opportunities, such as acquisitions or expanding product lines.
• Early Warning System: A declining ratio can signal that it’s time to revisit your receivables process, inventory management, or expense controls before problems escalate.

With 2025’s unpredictable market swings—think ongoing global supply chain issues, rising insurance premiums, and evolving tax rules—Australian SMEs are making it standard practice to monitor this ratio monthly, not just at year-end.

Real-World Case Study: Liquidity in Action

Consider an Adelaide-based manufacturer that saw its liquidity ratio drop from 1.4 to 0.9 after a major customer delayed payment. By quickly identifying the issue through their regular liquidity monitoring, the business was able to renegotiate supplier terms, secure a short-term overdraft, and avoid a costly cash crunch. In 2025, this proactive approach is becoming the norm—not the exception.

Key Takeaways for Australian Businesses

• Monitor your overall liquidity ratio monthly—especially in times of uncertainty.
• Benchmark against your industry and adjust your targets as economic conditions evolve.
• Use the ratio to inform borrowing, investment, and risk management decisions.

With new APRA guidelines and lender scrutiny in 2025, understanding and managing your liquidity ratio can give your business a critical edge.