Chapter 6 explains what each figure on the Solvency Dashboard means and how it's calculated. This chapter is about what to actually do once you can read them — and, just as importantly, what mistakes to avoid making with that knowledge.
8A.1 Reading the Signals First
Four figures matter most, and they do not always move together. Checking only one can leave you dangerously reassured.
| Signal | What it tells you |
|---|---|
| Above / Below BE | Whether trading revenue actually covers every cash obligation this period — wages, overheads, debt, tax, dividends. This is the most direct solvency signal the app produces. |
| DSCR | Whether operating cash flow covers debt service specifically. Below 1.0 is critical; 1.25 is the working target; 2.0+ is well covered. This measures debt serviceability — not overall solvency. |
| Current Ratio | Whether short-term assets cover short-term liabilities — the liquidity cushion for the next 12 months specifically. |
| Cash Trend | The direction of travel over the full forecast period — useful for the story, but the least sensitive of the four. Cash can still be rising while the business is trading below breakeven, if new borrowing is propping it up. |
8A.2 The Levers Available, and Their Trade-offs
Every lever that improves one figure costs something elsewhere. None of them is free.
| Lever | What it buys you | What it costs |
|---|---|---|
| Creditor Days | Fast, informal cash relief — no paperwork, no approval process | A ceiling exists. Suppliers eventually demand cash terms or cut credit. Invisible to anyone not specifically watching this figure — can mask a real problem for a while |
| Debtor Days | Genuine cash improvement if collections tighten | Customer relationship risk if pursued too aggressively; may not be achievable if terms are market-standard |
| New Borrowings | Transparent, doesn't damage trading relationships, buys real time | Shows up in DSCR immediately, carries an interest cost, and converts a trading problem into a longer-term Balance Sheet commitment |
| Overhead Contingency % | Forces genuine prudence into the forecast — a real buffer, not a hope | Raises the very Breakeven Revenue target you have to clear. A bigger buffer is safer but harder to hit |
| Margin management (COGS%, Fuel, pricing) | The deepest lever available — directly moves the ratio the entire Breakeven Formula divides by | Often outside short-term control (contracts, competition); small % swings in margin move Breakeven Revenue disproportionately |
| Capex timing | Immediate cash flow relief by deferring investment | Deferred maintenance risk; does nothing to fix an underlying margin or trading problem |
8A.3 Worked Case Study — Coastal Freight's Margin Compression
This is a real forecast, built and verified inside the platform, showing how a freight business can drift from healthy-looking into genuine difficulty — and recover — inside three years.
Headline numbers still look reasonable: Net Income $417,636, Revenue growing. But look past the headline: DSCR sits at 1.01x — right on the critical minimum — and the Board Report's own signal reads "Monitor," not "Positive." Fuel costs and COGS% have already started climbing faster than freight rates can be passed on. A director checking only Net Income would see nothing wrong. A director checking DSCR would already be asking questions.
The margin compression bites in full: Gross Margin falls to 29.7%, Net Income turns into a genuine loss of -$1,175,350, and the Breakeven Surplus turns negative — the business is now trading below the revenue it needs to cover its obligations. DSCR falls to 1.06x, and the Board Report's own signal reads "Monitor." The response modelled here was a $1,000,000 emergency borrowing — real and transparent, and it kept cash from falling further (closing at essentially flat, -$3,355, rather than a deeper deficit). But it is not a fix for the margin problem itself; it is time bought at a cost, repaid with interest in the years that follow.
Margin recovers to 36.8% — genuinely better than FY2027, not just a return to where things started — through corrective action on pricing and cost discipline, not through the borrowing. Net Income returns to $2,069,349, DSCR climbs to a comfortable 2.36x, and the Board Report signal reads "Positive" again. The recovery is earned, not assumed — it took two years of visible strain before it showed in the numbers.
8A.4 Common Traps
8A.5 Action Checklist — If You're Below BE
- Identify the actual cause first. Revenue shortfall, margin compression, or a fixed-cost increase are three different problems with three different fixes — don't reach for a lever before knowing which one you're pulling it for.
- Check DSCR and Current Ratio separately. Don't assume one tells you about the other — Coastal's own numbers show they can diverge.
- Match the lever to the cause. A margin problem needs a pricing or cost fix, not just a loan. A working-capital squeeze should look at Days before it looks at debt. A genuine investment need should look at Capex timing before either.
- Model any debt-funded fix in full — the new borrowing, its interest, and its repayment schedule — not just this year's cash relief.
- Re-run the forecast and confirm Surplus turns positive again. A recovering Net Income is not the same as a recovered Breakeven position — check the actual signal, not just the direction of one number.
Chapter 10 — Purchases, Payments & the Working Capital Engine — goes one level deeper into the Creditor Days and Debtor Days levers introduced above, covering exactly how they drive Trade Creditors and Trade Debtors under the surface.