Is Your Leverage Helping You Grow — or Holding You Back?

Every business needs capital to grow. But how much debt is too much? And how do you know if your financing structure is healthy — or risky?

The answer lies in understanding and monitoring a set of powerful financial indicators: leverage and liquidity ratios.

These aren’t just metrics for banks. They’re essential tools for business leaders who want to protect financial health, reduce risk, and improve decision-making.

The Core Ratio: Net Debt / EBITDA

Net Debt to EBITDA is the go-to leverage ratio for lenders, investors, and CFOs.

Formula:

Leverage ratio = Net Debt ÷ EBITDA

👉 It tells you how many years it would take to pay off your debt using your core operating profit (EBITDA), assuming no growth and no interest payments.

A lower ratio means stronger ability to repay debt. A high ratio indicates potential financial stress — and can limit your options with banks or investors.

General benchmarks:

• Under 2.0× = conservative

• 2.0×–3.5× = moderate

• Over 4.0× = highly leveraged (risk zone)

  
  

But these thresholds vary by industry, size, and cash flow profile — context is key.

Other Relevant Liquidity & Leverage Ratios

🔹 Interest Coverage Ratio = EBITDA ÷ Interest Expense

Measures your ability to pay interest. A ratio under 2× is a red flag.

🔹 Current Ratio = Current Assets ÷ Current Liabilities

Shows short-term liquidity. Below 1.0 signals a potential cash crunch.

🔹 Quick Ratio = (Cash + Receivables) ÷ Current Liabilities

A stricter version of liquidity — no reliance on inventory.

🔹 Equity Ratio = Equity ÷ Total Assets

Indicates how much of your assets are financed by shareholders rather than debt.

These ratios help build a complete picture of financial resilience — not just how leveraged you are, but how well you can manage that leverage.

Why This Matters for CEOs and CFOs

✅ Lenders use these ratios to approve or deny financing✅ Investors use them to assess risk and valuation✅ Internal teams can use them to detect early signs of financial strain✅ Strategic decisions like M&A, dividends, or expansion depend on leverage capacity

How Flow Advisory Can Help

At Flow Advisory, we guide business leaders across Romania through strategic leverage analysis and benchmarking:

📊 Assess your current leverage & liquidity profile

We review financials and calculate all key ratios.

📈 Compare you against industry benchmarks

We use sector-specific data to help you understand where you stand relative to peers.

🎯 Define realistic, healthy targets

We help you establish optimal ratio thresholds aligned with your growth plans and risk appetite.

🏦 Support in refinancing, capital raising or debt structuring

We prepare you for conversations with banks or investors — with the right numbers and the right narrative.

The Bottom Line

Financial ratios aren’t just tools for your accountant — they’re early warning systems and strategic guideposts.

Understanding your leverage and liquidity metrics gives you clarity, credibility, and control.

Let Flow Advisory help you turn that insight into better decisions.