If you run a green industry business, you probably don’t spend your mornings thinking about financial ratios. You’re thinking about crews, weather delays, production schedules, equipment, and whether that new skid steer is going to generate enough work to justify the payment.
But buried in your balance sheet is a number that answers a very important question:
What percentage of your business is financed with borrowed money?
That number is called the liabilities-to-assets ratio.
What This Ratio Really Means
In plain English, the liabilities-to-assets ratio tells you how much of what your company owns actually belongs to the bank.
Every green industry business owns assets. Trucks, trailers, mowers, skid steers, tools, inventory, cash in the bank, and accounts receivable from customers who haven’t paid yet. All of these have value, and together they make up your total assets.
But many of those assets were likely financed. Equipment loans, vehicle notes, lines of credit, and credit cards are all liabilities. When you compare total liabilities to total assets, you see how much of your company is funded by debt.
The formula is simple: total liabilities divided by total assets.
If your company has one million dollars in assets and six hundred thousand dollars in liabilities, dividing 600,000 by 1,000,000 gives you 0.60. That means 60 percent of your assets are financed by debt. Only 40 percent is truly owned free and clear.
That perspective changes how you look at growth.
Why Leverage Is Common in the Green Industry
Green industry businesses are equipment-heavy by nature. Growth usually requires investing in trucks, trailers, and machines before the revenue fully catches up. Financing is normal. In many cases, it’s necessary.
A company that never uses debt may grow more slowly. A company that uses debt strategically can scale faster, add crews, and increase production capacity.
The key word is strategically.
A liabilities-to-assets ratio under 50 percent generally reflects a strong balance sheet. Between 50 and 65 percent is common for growing companies, and typically where the industry average is. Once you move into the upper 60s and 70s, leverage becomes more aggressive. Above 75 percent, especially if cash flow is tight, risk increases significantly.
Debt is a tool. But like any tool, it can create problems if overused.
Why Seasonality Changes the Risk
Many green industry businesses do not have perfectly steady revenue throughout the year. In some markets, revenue slows during the winter months. Install work may pause. Maintenance contracts may shrink. Snow revenue may or may not materialize depending on the weather.
Your loan payments, however, don’t slow down.
Equipment notes, insurance, and debt service remain fixed. If your liabilities-to-assets ratio is high heading into a slow season, the pressure on cash flow increases quickly. The higher your leverage, the smaller your margin for error.
This is why this ratio matters so much in the green industry specifically. It’s not just about growth. It’s about surviving slow periods without financial strain.
How Banks and Buyers See This Number
When you apply for financing, this ratio is one of the first things a lender reviews. It helps them determine how much cushion your company has if revenue dips.
The same is true if you ever plan to sell your business.
Two green industry companies might each generate three million dollars in revenue. On the surface, they look equally successful. But if one has a 45 percent liabilities-to-assets ratio and strong retained earnings, while the other sits at 92 percent with minimal reserves, they represent very different levels of risk.
Buyers and lenders notice that immediately.
Lower leverage generally means more stability and flexibility. Higher leverage means higher dependence on continued strong cash flow.
What This Ratio Does Not Tell You
The liabilities-to-assets ratio does not measure profitability. It does not tell you whether your jobs are priced correctly. It does not show whether your debt payments are comfortably covered.
You could have a moderately high ratio and still be healthy if your gross margins are strong and your revenue is predictable. Conversely, you could have a lower ratio and struggle if job costing is weak and cash management is poor.
That’s why this ratio should always be viewed alongside margins, net profit, debt service coverage, and seasonal cash planning.
No single metric tells the whole story.
The Bigger Picture
At its core, this ratio answers a straightforward question:
If the company stopped operating tomorrow, how much of what it owns would the bank take?
That’s not meant to create fear. It’s meant to create clarity.
The goal isn’t just to grow revenue or accumulate more equipment. The goal is to build a company you truly own — one that can handle slow seasons, absorb unexpected costs, and eventually be sold from a position of strength.
Understanding what percentage of your business is financed with borrowed money gives you a clearer picture of your risk, your flexibility, and your long-term stability.
And for a green industry business, that clarity is powerful.