A company can be profitable on paper and still struggle to pay a bill due next Tuesday. Today you'll learn the simple test for that, using Safaricom's own balance sheet.
So far this course has mostly asked "is this company profitable, and how profitable?" That's an important question, but it's not the same as asking "can this company actually pay what it owes?" Those are two separate questions, with two separate names:
A profitable company can still be short on liquidity if too much of its cash is tied up in things that take time to sell or collect. Today you'll calculate one ratio for each question, both using numbers you've already seen on Safaricom's balance sheet.
The balance sheet splits assets and liabilities into "current" (due or usable within about a year) and "non-current" (longer-term). The current ratio compares the two current buckets directly:
Current ratio = Current assets ÷ Current liabilities. It answers: "for every KShs 1 of bills coming due within a year, how many shillings of cash-soon assets does the company have on hand?" A ratio of 1.0 means current assets exactly match current liabilities; below 1.0 means current liabilities are larger.
| KShs millions | 2024 | 2023 |
|---|---|---|
| Current assets (total) | 82,541.9 | 72,435.5 |
| Current liabilities (total) | 167,822.1 | 140,377.2 |
Source: Safaricom PLC Annual Report and Financial Statements 2024, p.178 (figures simplified/grouped for this lesson; audited, currency KShs millions).
Do the division for each year:
A current ratio of 0.49 means Safaricom's current liabilities are roughly double its current assets. On its own, that number looks alarming — it suggests Safaricom couldn't cover next year's bills purely from cash-soon assets. But a large, established company with strong, steady cash generation (recall Lesson 4: Safaricom generated KShs 107.9bn of operating cash in FY2024 alone) can safely run a current ratio below 1.0, because it can keep refinancing short-term obligations and paying bills out of ongoing operating cash flow rather than out of a static pile of current assets. A current ratio below 1.0 is a prompt to look closer, not an automatic red flag — context (steady cash generation, ability to refinance) matters as much as the number itself.
Solvency asks a different question: how much of the company is funded by debt (borrowings it must repay) versus equity (money the owners have put in and left in the business)? The simplest version compares total borrowings to total equity:
Debt-to-equity = Total borrowings ÷ Total equity. It answers: "for every KShs 1 the shareholders have invested, how many shillings has the company additionally borrowed?" A higher number means the company relies more heavily on debt relative to owners' money.
| KShs millions | 2024 | 2023 |
|---|---|---|
| Borrowings (non-current) | 63,093.2 | 42,050.0 |
| Borrowings (current) | 45,053.9 | 45,555.4 |
| Total borrowings | 108,147.1 | 87,605.4 |
| Total equity | 335,747.9 | 263,365.9 |
Source: Safaricom PLC Annual Report and Financial Statements 2024, p.178 (figures simplified/grouped for this lesson; audited, currency KShs millions; total borrowings = non-current + current borrowings, added for this lesson).
Do the division for each year:
A debt-to-equity ratio of 0.32 means Safaricom has about 32 shillings of borrowings for every 100 shillings of shareholders' equity — debt is present but well short of equity in size. The ratio barely moved between the two years (0.33 → 0.32), which tells you Safaricom's borrowing grew roughly in step with its equity, rather than debt piling up disproportionately. On its own, 0.32 looks manageable; whether it's "good" still depends on what's normal for a company's industry, which is exactly why Lesson 12 compares this figure to a bank's, where the normal range is very different.
Neither ratio, by itself, gives you a verdict. The current ratio tells you about the next twelve months; the debt-to-equity ratio tells you about overall reliance on debt — but "is 0.49 low enough to worry about" and "is 0.32 high enough to worry about" both depend on what's typical for the industry a company is in. A capital-heavy telco and a bank (which, as you'll see, holds customer deposits as a liability by design) don't share the same normal range for either ratio. That comparison is next.
Next lesson, we'll put Safaricom's debt-to-equity ratio side by side with Equity Group's, and explain why a bank being far more leveraged than a telco is normal for its industry, not a red flag.
Primary source for this lesson's numbers: Safaricom PLC Annual Report and Financial Statements 2024.
Something unclear, or want to dig into a line item we skipped (like "what exactly counts as a current liability")? Ask your teacher — that's what these sessions are for.