When valuing companies with high levels of debt, one thing often becomes clear:
Some businesses are operating very close to the survival line.
Interest expenses and other fixed costs don’t wait.
Because of this, companies often need to maintain certain numbers just to keep enough cash for daily operations.
In many cases, survival depends on three key thresholds:
1️⃣ Revenue level
Sales must stay above a certain point. If revenue drops even slightly, the company may not generate enough cash to cover fixed obligations.
2️⃣ Profit margin
Thin margins leave very little room for error. A small increase in costs can quickly erode cash flow.
3️⃣ Cash Conversion Cycle (CCC)
This reflects how quickly cash moves through the business:
• How long it takes to collect from customers
• How quickly suppliers must be paid
• How long inventory sits on the shelf
If cash comes in too slowly, the company may run into liquidity problems — even if the business is technically profitable.
When things don’t go as planned, the real question becomes:
Does the company still have access to credit?
Can it borrow more from banks?
Can shareholders or management provide additional funding?
This is why business valuation isn’t just about estimating what a company is worth.
Sometimes it reveals something more important:
How strong — or how fragile — a business really is.
💡 In your experience, which puts more pressure on businesses — falling revenue or slow cash collection?
#ORNA #BusinessValuation #DCF #Consult #Debt
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