May 1, 2026
The six most important financial ratios for restoration companies are: gross margin percentage, overhead ratio, current ratio, days sales outstanding (DSO), debt service coverage ratio (DSCR), and revenue per employee. Together these ratios reveal job-level profitability, overhead efficiency, liquidity, collection performance, debt capacity, and labor productivity.
Most restoration owners look at two numbers: revenue and what’s in the bank. Ratios are where the story is. Revenue going up while gross margin goes down means you’re growing the top line at the expense of profitability. DSO increasing month over month means your collection cycle is lengthening before the cash flow crisis hits. Ratios are leading indicators — they show you where you’re going before you arrive.
Formula: (Revenue – Direct Job Costs) ÷ Revenue × 100. Target: 45–65% blended; water mitigation 55–70%, reconstruction 30–45%. Warning sign: Trending down month-over-month, or below 40% blended. Break it down by service line — the blended average hides service-line-specific problems.
Formula: Total Overhead Costs ÷ Revenue × 100. Target: 30–42% of revenue. Warning sign: Above 45%, or trending upward without corresponding revenue growth. Break down overhead by category and evaluate each against the revenue it produces or enables.
Formula: Current Assets ÷ Current Liabilities. Target: 1.5 or higher. Below 1.0 means current liabilities exceed current assets — a technical insolvency signal. Current ratio below 1.5 typically indicates slow AR collection, excessive current debt, or cash being consumed by operations losses.
Formula: (Accounts Receivable ÷ Revenue) × Number of Days in Period. Target: Below 75 days overall; below 55 is excellent; above 90 is a collection problem. Monitor by payer type — TPA programs will run longer than direct commercial.
Formula: EBITDA ÷ Annual Debt Service (principal + interest). Target: 1.25 or higher. Below 1.0 means the business can’t cover its debt from operations. Know your ratio before approaching a lender — they’ll calculate it anyway.
Formula: Total Revenue ÷ Total FTE Employees. Target: $120,000–$175,000 per FTE for a typical mitigation-focused restoration company. Below $100,000 per FTE typically means either low billable hours ratio (utilization problem) or staffed ahead of revenue (growth investment).
DSO is the most frequently actionable for growing companies, because slow collections are the primary cause of cash crises in otherwise profitable companies. But gross margin is the most strategically important — because it determines whether growth is making the company stronger or just making the losses bigger.
Monthly for gross margin, DSO, and current ratio — these change materially month-to-month. Quarterly for overhead ratio, DSCR, and revenue per employee. Annual trend analysis for all six.
Yes — and this is common. High revenue with slow collections (high DSO) produces a balance sheet where AR is large but cash is thin. If current liabilities exceed current assets including the slow-collecting AR, the current ratio falls below target even with strong revenue.
Mike McCabe is The Profit Detective — a 36-year restoration industry veteran. Financial ratio analysis is a core component of every Profit Detective diagnostic engagement.
Most engagements pay for themselves within the first week.