A business is easiest to understand as a cycle: cash goes out to buy stock or deliver work, that work becomes an invoice, and the invoice eventually becomes cash again. The shape and length of that cycle tells you far more than any single ratio.
Why one metric is never enough
A snapshot of profit or a single leverage figure hides the timing that actually determines whether a business can meet its obligations. Two businesses with identical revenue can have completely different funding needs depending on how long their cash is tied up.
- How long between paying suppliers and getting paid by customers?
- How seasonal or contract-driven is the revenue?
- What identifiable events turn work into cash — invoices, milestones, settlements?
Matching the facility to the cycle
Once you can see the cycle, the right structure follows. Revolving facilities flex with the operating cycle and fund the gap; term facilities amortise from cash flow for longer-lived needs; receivables and trade finance release cash tied up in specific invoices or purchases.
Lend to the cycle, not to the snapshot. The timing of cash is the risk — and the opportunity.
Reviewing limits through the operating cycle keeps the facility aligned to the underlying business as it grows, rather than fixing a number that quietly drifts out of step with reality.