Calculate the strength of your company's financial structure. Undercapitalisation, equity that is insufficient against the level of debt, is one of the leading causes of SME insolvency in Portugal.
Calculate financial autonomy
Enter the balance-sheet and income-statement figures to see the company's financing structure.
Share capital + retained earnings + reserves. Found on the balance sheet.
Sum of all assets (current + non-current). Balance-sheet total.
Earnings before interest, taxes, depreciation and amortisation.
Total interest and other financial expenses paid.
Financial autonomy
Debt ratio
Interest coverage
Financing structure
Critical <20%
Fragile 20–33%
Acceptable 33–50%
Solid >50%
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Two indicators of financial strength
Financial autonomy (FA)
Measures the share of total assets funded by equity (rather than debt). The higher it is, the more independent the company is from external financing.
FA = Equity ÷ Total assets × 100
FA
Rating
> 50%
Solid
33% – 50%
Acceptable
20% – 33%
Fragile
< 20%
Critical
Interest coverage ratio
Measures how many times operating profit (EBITDA) covers annual financial expenses. A low ratio means the company uses a disproportionate share of its earnings to pay interest.
ICR = EBITDA ÷ Financial expenses
ICR
Rating
> 4×
Solid
2× – 4×
Acceptable
1× – 2×
Fragile
< 1×
Critical
Benchmarks by sector (Portugal)
Sector
Median FA
Technology / Software
45–60%
B2B Services
35–50%
Manufacturing
25–40%
Wholesale trade
20–35%
Construction
15–30%
Source: Banco de Portugal, Company Studies. Median values by sector for SMEs.
The undercapitalisation risk cycle
A low FA is not just a number, it is the starting point of a cycle that can end in insolvency:
Typical cycle
Insufficient equity→Reliance on debt→High financial expenses→Treasury pressure→Reactive decisions→Insolvency risk
Positive earnings do not guarantee financial health. A company can be profitable and still fall into insolvency through a lack of liquidity and an inadequate capital structure.
Frequently asked questions
What is financial autonomy and how is it calculated?
Financial autonomy (FA) measures the share of a company's assets that is funded by equity. Formula: FA = Equity ÷ Total assets × 100. An FA above 33% is generally considered healthy for Portuguese SMEs. Below 20% indicates structural undercapitalisation and a high risk of insolvency in the event of external shocks.
My company is profitable but has a low FA, should I be worried?
Yes. Positive earnings do not guarantee financial health. A company can be profitable and still be undercapitalised, which makes it extremely vulnerable to external shocks such as late collections, drops in sales or rises in interest rates. A low FA means the company relies too heavily on third parties (banks, suppliers) to fund its activity.
How does factoring improve financial autonomy?
Factoring advances the value of invoices already issued. With a non-recourse offer, it turns receivables into cash without adding debt to the balance sheet, unlike a bank loan (which increases liabilities and reduces FA); with recourse, the invoices usually stay on the balance sheet. This reduces reliance on short-term bank credit, one of the biggest drivers of FA deterioration in SMEs.
What is the interest coverage ratio and what is the recommended minimum?
The interest coverage ratio (ICR = EBITDA ÷ Financial expenses) measures how many times operating profit covers interest and financial expenses. A minimum coverage of 2× is recommended, meaning the company generates twice the expenses it has to pay. Below 1× is critical: the company does not generate enough profit to cover its own financial expenses.
How can I improve financial autonomy without injecting capital?
Three main strategies: 1) Replace bank credit (which increases liabilities) with non-recourse factoring (which can advance revenue without creating debt); 2) Improve profitability to grow retained earnings, which reinforce equity over time; 3) Divest under-used fixed assets, reducing total assets and improving the ratio. Confirming also helps: by extending supplier payment terms, it reduces treasury pressure without resorting to additional credit.
Reduce your reliance on bank credit.
Non-recourse factoring can turn invoices into cash without increasing liabilities. Confirming extends payment terms without straining your treasury. Together, they improve your SME's financial autonomy.