Calculate how solid your company's financial structure is. Undercapitalisation — equity that is too thin relative to the level of debt — is one of the leading causes of SME insolvency in the UK.
Total shareholders' equity (share capital + retained earnings + reserves). Take it from the balance sheet.
Sum of all assets on the balance sheet (current + non-current). Balance sheet total.
Earnings before interest, taxes, depreciation and amortisation. From the income statement.
Total interest and other financial charges paid. From the income statement.
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What this calculator measures
Measures the share of total assets financed by equity (rather than debt). The higher it is, the more independent the company is of external funding.
| FA | Rating |
|---|---|
| > 50% | Solid |
| 33% – 50% | Acceptable |
| 20% – 33% | Fragile |
| < 20% | Critical |
Measures how many times operating profit (EBITDA) covers annual interest expense. A low ratio means a disproportionate slice of earnings is being used to service interest.
| ICR | Rating |
|---|---|
| > 4× | Solid |
| 2× – 4× | Acceptable |
| 1× – 2× | Fragile |
| < 1× | Critical |
| Sector | Median FA |
|---|---|
| Technology / Software | 45–60% |
| B2B Services | 35–50% |
| Manufacturing | 25–40% |
| Wholesale | 20–35% |
| Construction | 15–30% |
Source: Bank of England, ONS business statistics. Sector medians for SMEs.
A low FA is more than a number — it's the starting point of a cycle that can end in insolvency:
Positive earnings don't guarantee financial health. A company can be profitable and still fail through a lack of liquidity and an inadequate capital structure.
Frequently asked questions
The financial autonomy ratio (FA) measures the share of total assets financed by equity. Formula: FA = Equity ÷ Total Assets × 100. A ratio above 33% is generally considered healthy for UK SMEs. Below 20% indicates structural undercapitalisation and a high risk of insolvency under external shocks.
Yes. Profitability doesn't guarantee financial health. A company can be profitable and still be undercapitalised — which makes it highly vulnerable to external shocks such as late receipts, revenue dips or rising interest rates. A low FA means the business relies too heavily on third parties (banks, suppliers) to fund its operations.
Factoring brings forward the value of invoices already issued — it doesn't add new debt to the balance sheet. Unlike a bank loan (which increases liabilities and reduces FA), factoring converts receivables into cash without altering the capital structure. That cuts dependence on short-term bank credit, which is one of the biggest drivers of FA deterioration in SMEs.
The interest coverage ratio (ICR = EBITDA ÷ Interest Expense) measures how many times operating profit covers interest and charges. A minimum coverage of 2× is recommended — it means the company generates twice the interest it has to pay. Below 1× is critical: the company isn't producing enough earnings to cover its own financial costs.
Three main strategies: 1) Replace bank credit (which adds to liabilities) with factoring (which brings revenue forward without creating debt); 2) Improve profitability to grow retained earnings, which strengthen equity over time; 3) Divest under-utilised fixed assets, reducing total assets and improving the ratio. Confirming also helps — by extending supplier payment terms it eases cash flow without taking on more credit.
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Strengthen your financial structure
Factoring turns invoices into cash without adding to liabilities. Confirming extends payment terms without squeezing cash flow. Together they improve your SME's financial autonomy.