In recent years, Brazil has witnessed a consistent increase in the number of judicial and extrajudicial reorganizations —a phenomenon that goes beyond macroeconomic factors such as high interest rates or economic slowdown . Behind this movement lies a quieter, more structural problem: the way many companies assess their own financial health.
Public data indicates that requests for judicial reorganization in Brazil have been growing significantly since 2023, with thousands of companies resorting to this instrument annually. In 2025, the volume surpassed recent historical levels, driven mainly by medium and large-sized companies.
Emblematic cases have once again drawn the market's attention, such as the situations involving GPA and Raízen , which announced restructuring processes amid significant financial pressures.
Although each case has its specificities, there is a common denominator that deserves reflection: the obsession with EBITDA as the main performance indicator.
EBITDA, an acronym for Earnings Before Interest, Taxes, Depreciation, and Amortization , is not a formal accounting metric. It does not appear in mandatory financial statements.
This is a market construct, widely used to try to equate operating income with cash flow generation. The problem is that this approximation is often illusory. The central point is simple: EBITDA is not cash. And companies don't pay their bills with EBITDA.
The indicator starts from accounting profit, which in turn is recognized at the time of sale and not at the time of receipt. In other words, a company can show revenue growth, a robust EBITDA margin, and still face serious financial difficulties if this result does not translate into cash.
This mismatch manifests itself in critical operational decisions that go unnoticed when the focus is exclusively on EBITDA. Longer payment terms, increasing default rates, accumulated inventory, and low working capital efficiency are factors that do not appear clearly in this indicator, but have a direct impact on the company's liquidity. It is at this point that the deterioration begins silently.
There's a classic passage from Ernest Hemingway 's book *The Sun Also Rises * that illustrates this process well. When asked how he went bankrupt, a businessman character replies: "First gradually, then suddenly." The logic is the same in the corporate world.
Companies don't go bankrupt overnight. They give warning signs: insufficient cash flow, increased debt, and a constant need for third-party capital to sustain operations. Meanwhile, EBITDA may continue to appear healthy, creating a false sense of security.
The problem worsens in high-interest rate environments, like the current one. With rates in the double digits, the cost of debt begins to consume a significant portion of the cash generated—when it exists. In this scenario, indicators such as net debt to EBITDA, widely used by the market, begin to deteriorate rapidly.
Historically, levels above 2.5 times have been considered significant warning signs. In practice, this means that the company would need two and a half years of cash generation through operations (with all the problems and limitations of EBITDA), without considering investments and other obligations, just to pay off its debts. It is a scenario of extremely high financial fragility.
What we see today is that many companies continue to operate with an almost exclusive focus on performance metrics, neglecting cash flow management. They receive payments on one side and pay on the other, often with mismatched payment terms. In more critical situations, they resort to taking on new debt to cover current obligations, fueling a cycle that, at a certain point, becomes unsustainable.
Here, it's important to highlight the importance of the cash flow statement, a mandatory financial statement in Brazil since 2008, which clearly shows, in three activities (operating, investing, and financing), the source and destination of the company's cash in a given period. This "moment" is the trigger. Hemingway's "suddenly."
It could be the loss of a significant client, a credit restriction, a review of a banking covenant , or even a regulatory change. When this trigger occurs, the already fragile company quickly enters a period of financial collapse, culminating in a request for judicial reorganization.
The recent surge in recoveries in Brazil, therefore, should not be interpreted solely as a reflection of an adverse economic environment with stratospheric interest rates. It also exposes a weakness in the way business performance is measured and monitored.
This doesn't mean that EBITDA should be discarded. It's a useful indicator for evaluating operational efficiency and comparing companies within the same sector. The problem lies in its isolated use—or, worse, in its elevation to the status of the main compass for management.
* Marcio Berstecher is an audit partner at RSM in Brazil.
