Reading Graphs Pt3: ROCE %, Debtor Days, Quick Ratio, and Equity vs. Liabilities.

Daniel Newlands
7 days ago
3 min read

The Survival Kit: How to Spot Financial Risk Before It Bites

You can have great revenue and a cool product, but if you run out of cash, it is game over.

In this edition of our dashboard guide, we are looking at the Risk Metrics. These four charts reveal the financial stability of a company. They tell you if the business is built on solid rock or if it is living on borrowed time.

Here is how to read the warning signs on the Reportly dashboard.

1. ROCE % (Return on Capital Employed)

What is it? ROCE measures how well a company uses its capital (money invested) to generate profit. It answers the investor's question: "For every pound I put into this machine, what percentage return are you giving me back?"
How to read the chart
- The Benchmark: Compare this against the cost of borrowing (interest rates). If a company is paying 5% interest on loans but only generating 2% ROCE, they are destroying value.
- The Swing: In the example chart, the line swings wildly from -100% to +150%. This indicates a highly volatile business model where a good year is amazing, but a bad year is catastrophic.
How to use this information
- For Observers: High, stable ROCE indicates a smart management team. Volatile ROCE suggests a gamble. If you are looking for a stable job, you want to see a smoother line than the one shown here.

2. Debtor Days

What is it? Debtor Days measures the average number of days it takes for a company to get paid by its customers after sending an invoice.
How to read the chart
- Height of Bar: Lower is better. A tall bar means cash is "trapped" in unpaid invoices.
- The Warning Sign: In the example chart, we see bars consistently hitting 80-100 days, with a spike to 130 days. This means they wait nearly 4 months to get paid for their work.
How to use this information
- For Sales Teams: This is critical. If a company takes 100 days to collect its own cash, do not expect them to pay your invoice in 30 days. They will likely delay paying you until they get paid.
- For Job Seekers: High debtor days can lead to cash flow crises, which puts payroll at risk.

3. Quick Ratio (Liquidity)

What is it? The Quick Ratio is the "Acid Test." It measures a company’s ability to pay its immediate short-term debts using only its most liquid assets (cash). It strips out things like inventory that might be hard to sell quickly.
How to read the chart
- The Magic Number: You want this to be 1.0 or higher. This means they have £1 in cash for every £1 of immediate debt.
- The Danger Zone: In the example chart, the line drops to 0.6 in 2020/2021. At that moment, the company could not cover its immediate bills without selling off assets or raising more money.
How to use this information
- For Suppliers: If the Quick Ratio is below 1.0, asking for upfront payment is a wise move. The risk of them running out of cash is real.

4. Equity vs. Total Liabilities

What is it? This chart visualises the company's Balance Sheet structure—essentially, who owns the business vs. who the business owes.
- Equity (Green): What the shareholders own (Assets minus Liabilities).
- Liabilities (Pink): What the company owes (Debts, Loans, Deposits).
How to read the chart
- The Balance: In a healthy, standard company, you want to see positive Equity (Green bars).
- The Red Flag: Look at the chart around 2020-2022. The Green bar goes negative (drops below the line). This is called "Negative Equity" or technical insolvency. It means the company owes more than its total assets are worth.
How to use this information
- For Everyone: High liabilities (tall pink bars) compared to low equity indicate a company funded by debt. This can fuel fast growth, but it makes the company fragile. If interest rates rise or revenue dips, the debt can crush them. Negative equity is a major warning sign that the company relies entirely on the goodwill of its lenders to survive.

Want to test your new skills? Check out our full example dashboards here.