Hospitality Businesses Have More Short-term Debt Than Cash And Assets

As New Zealand businesses headed into trading restrictions caused by COVID-19, those in hospitality did not have a significant amount of assets available to meet their short-term liabilities, Stats NZ said today.

“Cafes, takeaway businesses, and motels had some of the lowest current ratios of New Zealand businesses in the 2019 financial year,” annual enterprise survey manager Melissa McKenzie said.

Statistics released today from the 2019 annual enterprise survey show various measures of business financial statistics in New Zealand, one of them called the ‘current ratio’. Current ratio measures a company’s ability to pay short-term debt within one year. A low ratio suggests a business may struggle to pay off their current debts using only their available funds, if needed.

The current ratio for cafes, bars, restaurants, and takeaways (food and beverage services) in 2019 was 58 percent. This means they had $0.58 of assets available that they could turn into cash in the next year for every $1.00 of liabilities owed within the next year.

The accommodation industry also had a low current ratio in 2019, with $0.68 of current assets available for every $1.00 of liabilities due in the next year.

“In contrast, most other industries had more current assets available than short-term liabilities in 2019,” Ms McKenzie said.

Businesses may have other assets such as land, property, long-term investments, and goodwill, but these take longer to turn into cash so cannot be relied on to pay more immediate debts.

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