EBITDA as a cognitive trap: the evolution of management accounting, liquidity paradoxes, and the Cash Conversion Cycle imperative in a wartime economy (2022–2026)

Introduction: a metrics crisis and the ontological gap between reports and reality

In the economic history of states and corporations, there are recurring inflection points when familiar “navigation instruments” stop reflecting objective reality and turn from management tools into dangerous mechanisms of self-deception. The 2022–2026 period for Ukrainian business and the economies of Eastern Europe has become exactly such a watershed, requiring a fundamental reassessment of how we evaluate business viability. We observe a phenomenon that can be described as a deep “ontological gap” between standardized financial reporting and the physical reality of doing business.

On the one hand, CFOs, investment analysts, and business owners—equipped with classic MBA toolkits and international financial reporting standards (IFRS)—continue to treat EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) as the key, and sometimes the only, indicator of corporate health and investment attractiveness. This metric, embedded in corporate culture as a proxy for operating efficiency, continues to dominate board presentations and bank covenants.

On the other hand, the real economy—operating under unprecedented uncertainty, broken logistics, persistent energy shortages, and heavy regulatory pressure—shows every day that “paper profit” is no longer a survival guarantee. Companies with positive EBITDA face cash gaps, insolvency, and bankruptcy because liquidity is consumed by cost inflation, longer logistics lead times, and changes in settlement terms with counterparties.

This report provides a fundamental argument for a radical paradigm shift in management accounting. We argue that the traditional fixation on the P&L and EBITDA in the current macroeconomic environment is not merely outdated but a dangerous cognitive trap that masks fatal liquidity breaks. In a wartime economy and global turbulence—where legal risks (such as blocked VAT invoices or the mobilization of key personnel) become direct financial drivers—management models must shift from static profitability observation to dynamic flow control.

Based on a broad body of academic research (15+ sources), Big4 reports, global bankruptcy cases, and Ukrainian statistics for 2022–2025, this report advocates managing through the Cash Conversion Cycle (CCC). We will dissect the anatomy of the financial illusion, examine behavioral drivers of decision-making under stress, analyze the “scissors effect” in Ukraine’s economy, and propose a practical methodology of “survival financial engineering” that integrates legal and financial instruments to protect owners’ capital.

Part I. The anatomy of a financial illusion: why EBITDA lies

1.1. How the metric mutated: from a banker’s tool to a market “religion”

To understand why EBITDA has become a dangerous trap, we must revisit its origins. EBITDA is not a standardized GAAP/IFRS metric; it emerged in the United States in the 1980s during the leveraged buyout (LBO) boom.

For bankers, investors, and corporate raiders of that era (e.g., KKR or Drexel Burnham Lambert), the key was to quickly assess whether a target could service aggressive debt in the short term. They wanted operating cash flow before interest (capital structure would change) and taxes (tax shields would change). Depreciation was largely irrelevant within many LBO strategies because the focus was cost optimization and quick resale or cash extraction—not long-term reinvestment. In that narrow context, EBITDA was a pragmatic rough proxy for cash flow.

When transplanted into developing markets—particularly the post-Soviet space in the 2000s–2010s—the metric underwent a dangerous mutation. EBITDA became a universal success yardstick, effectively replacing free cash flow (FCF) and net profit in management discourse. Owners and executives, often incentivized by EBITDA-linked bonuses, began to treat EBITDA as “cash that can be taken out” or reinvested, ignoring the embedded needs for working capital and asset maintenance.

This substitution has long been criticized by world-class investors. Charlie Munger famously said:
“Every time you see the word EBITDA, you should substitute it with ‘bullshit earnings.’”

Warren Buffett similarly emphasized the core flaw:
“I am amazed at how widespread the use of EBITDA has become… People try to dress up financial statements… Those who use EBITDA are either trying to con you or conning themselves. Do they think the Tooth Fairy pays for capital expenditures?”

In peacetime and cheap-money environments, this illusion could persist for years via refinancing and market growth. In a wartime economy (2022–2026), the landscape changed. CapEx has shifted from optional growth investment to a hard “survival tax”: industrial generators, shelters, relocation, and rebuilding damaged assets require immediate cash outflows. Ignoring these costs in pursuit of a pretty EBITDA number becomes a fatal strategy.

1.2. Behavioral finance: the psychology of CFO self-deception

Why do CFOs cling to EBITDA despite its obvious shortcomings and high-profile criticism? The answer lies in behavioral finance.

NBER research by Ben-David, Graham, and Harvey found a striking inability to forecast risk: 36% of CFO forecasts fall outside their own 80% confidence intervals. This indicates systematic overconfidence in assessing financial health and predicting volatility. CFOs also tend to underestimate market volatility by an average of 14.2% (in standard deviation terms), which leads to overly low discount rates and, consequently, overinvestment in projects that look profitable on paper but destroy value in reality.

We highlight key cognitive distortions (also discussed in McKinsey work) that turn EBITDA into a mental trap:

1. Anchoring bias: fixation on pre-war valuation multiples (e.g., “we are worth 5x–6x EBITDA”) and historical margin benchmarks that no longer apply due to higher cost of capital and country risk.
2. Confirmation bias: management selectively interprets information to validate existing beliefs. Positive EBITDA becomes a sedative that allows ignoring warning signs in the cash flow statement; cash gaps are treated as “temporary technical issues.”
3. Illusion of control: EBITDA can be “managed” via accounting policies (revenue recognition, expense capitalization, adjusted EBITDA). Cash flow is constrained by external parties (customers, banks, tax authorities), which management cannot fully control.
4. Inertia: finance organizations resist cash-based analysis because it requires process redesign, new data flows, new KPIs, and cultural change. “We’ve always done it this way” blocks CCC monitoring.
5. Overconfidence: CFOs believe they can “push sales” and “collect receivables quickly,” underestimating external shocks—particularly destructive in crisis settings.

1.3. “Profit exists — cash doesn’t”: the mechanics of the gap

A central paradox for Ukrainian companies in 2024–2025 can be summarized as “Revenue up, Cash down.” Nominal revenue growth under inflation and logistics disruption can destroy liquidity faster than flat or declining sales.

Key mechanisms behind the P&L vs cash flow gap include:

1. Working capital inflation: replacement costs rise; to sell the same physical volume, far more cash must be locked in inventory and receivables.
2. Accrual accounting masks reality: revenue is recognized at shipment/service delivery, not at payment. In war, payment terms stretch; companies pay profit tax on “paper profit” while cash has not arrived.
3. Maintenance CapEx is ignored: energy independence and physical security spending is cash-real but EBITDA-invisible.
4. Debt service and taxes: EBITDA ignores interest and taxes. With a high NBU policy rate (15.5% at end-2025, and a tight-policy outlook), interest can consume most operating profit. A company with EBITDA of UAH 100m and interest of UAH 90m may look “healthy” by EBITDA yet be close to default.
5. Blocked VAT invoices (SMKOR): when VAT invoices are blocked, companies effectively lose access to 20% of working capital (VAT amount). Buyers delay full payment because they cannot claim input VAT. The P&L doesn’t show this; cash flow gets a hole. Business Ombudsman Council data indicate that 40% of active VAT payers faced blocked VAT invoices.

1.4. Global lessons: the graveyard of positive-EBITDA companies

The business world is full of examples where companies maintained “healthy EBITDA” until collapse.

• Toys “R” Us (2017): post-2005 LBO debt rose from $1bn to $6.2bn (82.7% of capital). Annual interest of $400–450m absorbed operating cash flow.
• WeWork (2019–2023): “Community Adjusted EBITDA” excluded major real costs. Net losses: $4.63bn (2021), $1.59bn (2022). The core problem was a maturity mismatch: long-term lease liabilities ($17.9bn) versus short, unstable subscription revenue—unfixable by adjusted EBITDA.
• Carillion (2018): liquidity propped up via stretched payables (DPO up to 120 days) and reverse factoring disguised as trade payables; hidden debt grew to £1.3bn. When new work slowed and suppliers demanded payment, the structure collapsed.
• Circuit City vs Best Buy (2013): CCC at Circuit City was 35 days versus 5 days at Best Buy (7× difference). Circuit City even had a higher current ratio (2.08 vs 1.24), demonstrating how static liquidity ratios can mislead, while CCC captured real fragility.

The conclusion is straightforward: in environments of high leverage or structural market change, relying on EBITDA alone is like driving while looking only in the rearview mirror and ignoring the fuel gauge.

Part II. The Physics of Liquidity: Cash Conversion Cycle as a Control Instrument

2.1. CCC methodology and economic meaning

In contrast to static and easily “managed” EBITDA, the Cash Conversion Cycle (CCC) is a dynamic metric that measures the speed of capital circulation—the number of days between the moment a company pays suppliers and the moment it receives cash from customers. The shorter the cycle, the faster operations turn into real cash. While EBITDA is a static indicator of “success,” CCC is a metric of “speed.” It answers the core crisis question for an owner: “How long does it take from paying a supplier to actually receiving money from the customer?”

When money is expensive (NBU policy rate, real lending rates) and inflation is elevated, time becomes the most expensive resource. Every additional day of the conversion cycle requires additional working capital—often unavailable or prohibitively expensive.

CCC integrates three key operational realities and connects procurement, sales, and logistics into one equation:
CCC = DIO + DSO − DPO, where:

• DIO (Days Inventory Outstanding) — inventory period: how many days cash is frozen in raw materials, WIP, and finished goods. This is the “price” of logistics and the production cycle.

  • Formula: (Average Inventory / COGS) × 365

• DSO (Days Sales Outstanding) — receivables period: how quickly customers pay invoices. This is the “price” of commercial policy and customers’ solvency.

  • Formula: (Average Accounts Receivable / Revenue) × 365

• DPO (Days Payables Outstanding) — payables period: how long the company uses interest-free supplier credit. This is the only component that improves liquidity (it is subtracted).

  • Formula: (Average Accounts Payable / COGS) × 365

Example (typical Ukrainian distributor):
Assume a company with annual turnover of UAH 120m (~UAH 328k/day).

• DIO = 60 days (goods in transit, customs, warehouse)
• DSO = 45 days (customer credit terms)
• DPO = 30 days (supplier credit terms)
• CCC = 60 + 45 − 30 = 75 days

Economic meaning: the company must self-finance 75 days of operations. In cash terms, that is UAH 328,000 × 75 ≈ UAH 24.6m of “frozen” money withdrawn from circulation.

Reducing the cycle by just 15 days (e.g., by improving warehouse turnover by 10 days and collections by 5 days) releases almost UAH 5m of live liquidity. This effect is comparable to raising a UAH 5m credit line—without interest, collateral, or dependence on a bank credit committee. In large businesses the effect can reach billions: the Alcoa case showed that reducing NWC by 23 days released $1.4bn of free cash flow.

How to interpret CCC:

• Positive CCC: the company finances the gap between paying suppliers and collecting from customers. This is normal for most businesses.
• Negative CCC: the company operates on customers’ money, receiving cash before paying suppliers. This is ideal for SaaS (prepayments), fast-turnover retail, and franchise models. Amazon historically operated with negative CCC.
• Lower is better ceteris paribus, but there is an optimum: overly aggressive shortening may cost customers (if you demand prepayment) or disrupt supply (if you stretch DPO too far).

2.2. Non-linear relationship between CCC and profitability in a crisis

Academic research (2020–2025) shows a pattern critical for today’s reality: the impact of CCC on resilience and profitability is non-linear and depends on the macro context. A study across 47 developed and emerging markets (Chen et al., 2022) found that CCC’s effect on performance is significantly stronger in emerging economies—Ukraine included.

Portfolios of companies with low CCC (Low-minus-High strategy) generated monthly alpha of 0.277–0.730%. During economic crises, the marginal effect of CCC on ROA increases 3.9x versus stable periods—explained by higher cost of capital. Each extra day of frozen cash in inventory or receivables under inflation, FX risk, and high rates becomes exponentially more expensive.

Studies also indicate a U-shaped dependence: reducing working capital improves efficiency, but there is a “critical threshold.” Excessive inventory cuts can trigger stock-outs, sales stoppage, and market-share loss. However, in current Ukrainian conditions the dominant risk is cycle lengthening (“dying of thirst while holding assets”), not excessive shortening.

2.3. The “scissors effect” in the Ukrainian economy (2022–2025)

Ukrainian businesses are exposed to a uniquely destructive phenomenon we call the “scissors effect.” War disrupts economic links and tears the conversion cycle from three sides at once, creating a perfect storm for liquidity:

1. DSO (receivables) rises: purchasing power falls due to inflation and migration. State customers and large corporates delay payments citing force majeure and budget gaps. Atradius Payment Practices Barometer (2023) reports that in Eastern Europe 46% of B2B credit sales value is affected by late payments. In Ukraine, surveys show 68% of companies report deterioration or stagnation in collections (DSO).
2. DIO (inventory) rises: physical and logistical risks (border blockades, port infrastructure attacks, energy blackouts) force companies to abandon efficient Just-in-Time models and shift toward Just-in-Case buffers. Businesses build excess safety stock of raw materials and finished goods. Logistics from China or the EU that used to take 2–3 weeks can now take up to 2 months due to border queues, freezing capital “in transit.”
3. DPO (payables) declines: foreign suppliers cancel trade-credit limits and demand 100% prepayment (or LCs) due to Ukraine’s elevated country and war risk. Domestic suppliers also cut payment terms to protect their own cash flow, depriving Ukrainian businesses of cheap financing.

Mathematically, this combination drives CCC upward. If before the war a trading company’s CCC could be a healthy 30 days, now it can reach 90–120 days. P&L and EBITDA may remain positive due to accrued revenue, but actual operating cash flow becomes deeply negative, requiring owner injections or expensive borrowing.

2.4. Sector benchmarks and structural imbalances

Understanding “normal” is critical for diagnostics. Global and local data show major differences in CCC structure by industry and business size, creating structural imbalances:

• Retail (Food/FMCG): typical CCC 4–20 days. Fast turnover and immediate consumer payment allow negative cycles (funded by suppliers). Exception: seasonal/specialized retail — 60–90 days.
• Distribution: 35–60 days. Most exposed to the scissors effect due to bargaining power constraints on both sides.
• Manufacturing: 60–120 days due to longer production cycles and raw-material storage.
• Construction: the longest cycle — 90–150+ days, making the sector extremely sensitive to sales stoppages.
• IT Services / SaaS: −30 to −90 days (prepayments, subscription models).

A key imbalance: KPMG (US Working Capital Trends 2025) shows large companies (revenue > $3bn) convert cash nearly 2x faster (65 days) than small companies (revenue < $300m, 120 days). In Ukraine, the gap is even sharper: large retailers and agroholdings can push liquidity out of the supply chain and shift crisis financing burden onto SMEs—who must borrow at high rates or fail.

Part III. Crisis chronicles: sectoral analysis of Ukraine (2023–2025)

3.1. Agriculture: logistics thrombosis and the inventory trap

Agroholdings—traditional drivers of Ukraine’s economy and exports—faced unprecedented pressure on DIO. A clear example is Kernel’s public case. In its FY2024 report, one of the largest agroholdings showed how war hit asset liquidity. Grain at elevators used to be classified as Readily Marketable Inventories and effectively treated by banks as cash in covenant and liquidity calculations. The blockade of deep-water Black Sea ports removed that “instant liquidity” property. Hundreds of thousands of tons became trapped. The company held massive balance-sheet assets yet faced a liquidity deficit and had to restructure debt.

Forced rerouting to Danube ports (Reni, Izmail) and overland rail/road routes via the western border drove logistics costs and cycle time up. In 2023, logistics reached 21% of the final grain price. Cargo waited at borders for weeks (higher DIO), freezing tens of millions of dollars of working capital “on wheels” and “on barges.”

3.2. Retail: the fight for DPO and physical losses

Retail sits at the center of supply-chain conflicts. Major national chains such as ATB and Silpo must continuously adapt financial strategies. On the one hand, they use market power to keep or expand supplier payment deferrals (high DPO). On the other hand, producers and importers pressure them to shorten payment terms due to FX volatility and inflation.

A second hit to CCC is physical asset destruction. The destruction of a Fozzy Group warehouse in Kyiv region early in the invasion is an example of direct inventory loss (DIO) that instantly creates a large balance-sheet hole. Goods are destroyed, but supplier obligations remain. Insurance payouts (cash inflow) in wartime are complex and slow—months or years. P&L may record an “extraordinary loss,” but treasury experiences an immediate cash gap that EBITDA cannot predict or offset.

3.3. Construction: the debt pit and the illusion of assets

Construction—especially the Kyivmiskbud case—shows the most dangerous gap between “paper” assets and real insolvency. The balance sheet carries huge Work in Progress. Accounting treats it as a valuable asset, but with primary-market demand collapse (sales down 90% early in the war and weak recovery), it cannot be converted into cash—DSO effectively tends to infinity.

The company becomes insolvent while holding billions of UAH in assets. Projects may show positive budgeted profitability (analogous to project EBITDA), but lack of incoming cash from investors makes completion financing impossible. This is the classic “inventory trap” (high DIO) combined with a stopped cash inflow.

3.4. Bankruptcy statistics: alarming signals 2024–2025

Macro data confirm growing liquidity stress. Opendatabot reports a worrying rise in insolvency cases in 2024. In the first five months of 2024, 343 individuals filed for bankruptcy—2.2x more than the same period a year earlier—signaling depletion of resilience among households and small business.

For legal entities, pressure remains high. Despite moratoria and state support, the number of closed companies is large. A further factor is tax administration: in 2024, the tax service blocked registration of 2.33 million VAT invoices, affecting tens of thousands of active businesses.

A blocked VAT invoice is effectively an instant withdrawal of 20% of working capital (VAT amount) from the operating cycle. For low-margin businesses, such “freezing” for an undefined period (months) becomes a lethal liquidity shock—unseen in EBITDA until losses are written off.

3.5. European context

EU Payment Observatory Annual Report 2024: 47% of EU companies were affected by late payments in 2023 (up from 43%), the largest increase in five years. 21/27 member states deteriorated. 10/14 sectors pay later than the 60-day benchmark.

Intrum European Payment Report 2024:

• Cost of late payments: €275bn per year (≈ Finland’s GDP)
• Total receivables: €10.5tn (≈ France + Germany + UK GDP combined)
• Working days spent chasing late payments: 74 days/year
• 3 out of 4 large companies extended payment terms in 2023

Allianz Trade: global Working Capital Requirement reached 76 days (+2 vs 2022), the third year of growth. Global DSO in 2023: 59 days (+3, the biggest jump since 2008).

The proposed EU Late Payment Regulation sets maximum payment terms of 30 days (60 by agreement), automatic interest (ECB rate + 8%), and fixed compensation of €50–150. Allianz Trade estimates that cutting terms to 30 days would require €2tn of additional financing.

Part IV. Regulatory and accounting traps: how the law “breaks” cash flow

4.1. SMKOR and tax risks as a driver of cash gaps

The System for Monitoring Risk Assessment Criteria (SMKOR) evolved from an anti-fraud tool into a major source of financial uncertainty for the real sector. The 2024 blocking statistics are severe: monthly invoice-registration issues hit 24,000 VAT payers—about 15% of all active VAT filers.

From a management-accounting lens: EBITDA does not change (taxes accrue under the “first event” principle), but cash flow collapses. A buyer without registered VAT credit can legally delay payment by the VAT amount—or even the full invoice amount if contractually allowed. An administrative action instantly extends DSO and overall CCC, triggering a cash gap.

4.2. Ukraine’s Bankruptcy Procedures Code: liquidity primacy

Ukrainian law clearly prioritizes solvency over profitability. Under the Code of Ukraine on Bankruptcy Procedures (Article 115), proceedings may be opened if the debtor stops paying loans or other scheduled payments exceeding 50%of monthly payments for two months, or if circumstances show the debtor will not be able to meet monetary obligations soon (threat of insolvency).

Critically: positive EBITDA or retained earnings are not legal protection against insolvency. If profit exists “on paper” but cash is insufficient to meet obligations (tax authorities, banks, employees), the company is de jure and de facto bankrupt. This hardwires the priority of cash flow over P&L in survival.

4.3. Accrual accounting and “quality of earnings”

IFRS and local standards are accrual-based, creating a structural gap between accounting profit and cash flow. A company may report high profit by recognizing revenue at shipment or acceptance—even if cash arrives in 60–90 days or never arrives.

Therefore, professional investors and banks increasingly focus on Quality of Earnings and working-capital analysis in due diligence. EBITDA without ΔNWC analysis is an incomplete picture—dangerous in a crisis.

Part V. Practical protocol: moving from EBITDA to Cash Excellence

5.1. Diagnosis and “red flags”

First: honest and fast diagnosis. If your CFO cannot state current CCC (days) and its 3-month trend within 10 minutes, this is a major competence red flag.

Critical danger signals requiring immediate action:

• DSO grows faster than revenue: you are funding customers more aggressively than the business grows.
• DIO grows without proportional sales growth: overstocking, illiquid stock, dead stock.
• Suppliers cut payment deferrals: DPO drops—trust in your solvency erodes.
• OCF/EBITDA gap: operating cash flow is systematically below EBITDA (conversion < 0.8).
• Short-money dependence: increasing overdraft usage to cover operating expenses (payroll, taxes) while “formally profitable.”

5.2. Management toolkit (Action Plan)

To shift to liquidity management, implement:

1. 13-week cash flow forecast (13-Week Cash Flow Forecast): the crisis “gold standard” recommended by restructuring advisors (KPMG, Deloitte). Unlike annual budgets that are outdated upon approval, rolling 13-week forecasts allow real-time liquidity control. Use Direct Method based on specific expected inflow dates and supplier payment schedules—not accrual accounting.
2. Receivables (DSO):

• Segmentation and limits: strict credit policy, risk segmentation, hard limits, shipment stops on overdue.
• Automation: dunning automation and legally valid e-docs to cut document cycle and payment by 3–5 days.
• Dynamic discounting: e.g., 2% early-payment discount can be cheaper than overdraft under high rates.

3. Inventory (DIO):

• Stock cleansing: ABC-XYZ analysis; aggressive liquidation of dead stock/category C. Better to turn dead goods into cash even at 50% discount than pay storage and freeze capital.
• Balance: Just-in-Time where feasible + strategic buffers for critical imports.
• Vendor-Managed Inventory: shift inventory management to suppliers.

4. Payables (DPO):

• Communication: transparent dialogue with suppliers; trust becomes hard currency. Payment plans often work better than silence and uncontrolled arrears that stop deliveries.
• Management: term extensions, contract reviews, pay at the last reasonable moment.

5.3. LigLex financial-legal engineering: protecting flows

LigLex methodology integrates legal and financial functions. Lawyers should move from “contract visa-stampers” to “liquidity engineers.”

• Contract hygiene: payment terms, title transfer, and late-payment liability must match the real financial cycle.
• Tax safety: proactive counterparty checks under Article 44 of the Tax Code of Ukraine to reduce invoice-blocking and VAT credit loss risk.
• Asset protection: structuring to protect against raiding or unlawful seizures that paralyze operations.

Which red flags indicate CCC problems?

CCC rising for several quarters, AR growing faster than revenue, and supplier prepayment demands are critical signals of an approaching liquidity crisis.

DSO (receivables):

• 🚩 DSO rising quarter-on-quarter
• 🚩 AR growing faster than revenue
• 🚩 aging shifting to 60+ / 90+ day buckets
• 🚩 increasing write-offs

DIO (inventory):

• 🚩 inventory growth without sales growth
• 🚩 lower inventory turnover
• 🚩 higher storage costs
• 🚩 more slow-moving SKUs

DPO (payables):

• 🚩 suppliers demand shorter terms
• 🚩 credit hold from key suppliers
• 🚩 missed early-payment discounts
• 🚩 supply disruptions

General signals:

• 🚩 payroll difficulty despite “profitable” operations
• 🚩 growing overdraft dependence
• 🚩 CCC far above industry benchmarks
• 🚩 CCC lengthening several periods in a row

Checklist: from EBITDA-centricity to Cash Excellence

Diagnosis (week 1–2): calculate CCC and components; benchmark; build 8–12-quarter trend; measure EBITDA vs OCF gap; identify top-3 weak zones.
Quick wins (month 1–3): ABC inventory; automated receivables reminders; revisit payment calendar; assign WC metric owner; add CCC to weekly reporting.
System changes (month 3–12): integrate CCC into finance KPIs; 13-week forecasting; revise credit policy; optimize contract terms; tie commercial bonuses to “paid margin.”

Conclusion

Running a business in Ukraine in 2022–2026 is a marathon through a minefield. Focusing only on EBITDA is like navigating with an old map that ignores new minefields and destroyed bridges. EBITDA may show how efficiently you would run on a flat road, but it says nothing about whether you will survive to the finish.

Managing via CCC is not just changing formulas in Excel—it is a shift in managerial philosophy and culture. In wartime, liquidity matters more than profitability; cash speed matters more than margin size. The “king” is not just cash, but the speed of cash.

Global cases (Toys “R” Us, WeWork, Carillion) and thousands of local tragedies show: markets do not forgive confusing profit with money. In turbulence, the winner is not the most “profitable on paper” but the fastest, most liquid, and most adaptive. Therefore, your first board question should be not “What is our EBITDA?” but: “What is our cash conversion cycle, our runway in weeks, and how do we accelerate capital turnover today?”

Owner actions today: calculate CCC now (if CFO cannot answer in 10 minutes, it is a red flag); compare to benchmark (gap > 30% requires systemic action); add CCC to reporting alongside EBITDA; in turbulence, cash priority over profit is non-negotiable.

“Cash provides flexibility, and working capital efficiency provides cash,” — PwC Working Capital Study 24/25. Globally, €1.56tn of excess working capital is frozen in companies. Your money is frozen somewhere too. The question is: do you know where?

Appendix: Comparative table of management metrics

FAQ: Common questions about CCC

1. Can EBITDA be positive while cash flow is negative?
   Yes—common when inventory grows fast, customers receive long terms, or suppliers are paid faster than customers pay. ABI data indicates more than 33% of bankrupt firms showed this pattern.
2. What CCC is critically dangerous?
   No universal threshold; watch trend and industry comparison. Immediate-action signals: CCC up 20%+ YoY; CCC 2x industry median; CCC requiring financing >25% of annual revenue.
3. How can CCC be negative, and is it good?
   Negative CCC means customers pay before you pay suppliers. This is ideal: business operates on others’ money. Typical for SaaS (prepay), fast retail, franchises.
4. Why do banks still use EBITDA?
   EBITDA is a proxy for debt-service capacity, but advanced lenders add FCF and working-capital trend analysis. Post-2020–2023 bankruptcies increased focus on cash metrics.
5. How often should CCC be monitored?
   Operationally—weekly (DSO/DIO/DPO). Strategically—monthly. Benchmarking—quarterly.
6. What matters more: EBITDA or cash flow?
   Both matter for valuation, but for survival in turbulence, cash and its speed (CCC) must come first. EBITDA without ΔNWC and CapEx control often creates false safety.
7. Can a “good” CCC be negative?
   Yes in some models (e.g., parts of retail), but negative CCC alone does not guarantee health. The driver matters: sustainable model vs squeezing suppliers.
8. Where to start if management accounting is weak?
   Start with minimal data: credit vs prepay sales, inventory for key SKUs, and payables for key suppliers. Then build a weekly DSO/DIO/DPO tracker and a 13-week cash forecast.
9. How to explain to sales that CCC is not “finance nitpicking”?
   Show the growth “price” in UAH: how much cash one extra day of customer terms consumes at current revenue. Tie exceptions to margin/risk; tie bonuses to paid margin.
10. Why did this intensify in 2024–2026?
    Because money is more expensive, late payments normalize, and regulatory pressure on payment discipline increases—while the volume of frozen working capital remains massive.

Author of article Sergey Lipatnikov

Data and analysis are based on NBER, Big4 (PwC, Deloitte, KPMG), McKinsey, Opendatabot, the NBU, EBA, and LigLex Consulting internal analytics (2022–2025).

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This article is informational and does not constitute legal or financial advice. For management decisions, consult qualified professionals considering your business specifics.