3) Debt Ratios
3.1) Debt Ratio
3.1.1) compares a company's total debt to its total assets, which is used to gain a general idea as to the amount of leverage being used by a company.
3.1.2) A low percentage means that the company is less dependent on leverage, i.e., money borrowed from and/or owed to others.
3.1.3) The lower the percentage, the less leverage a company is using and the stronger its equity position. In general, the higher the ratio, the more risk that company is considered to have taken on.
| Debt Ratio = | Total Liabilities |
| Total Assets |
3.2) Debt-Equity Ratio
3.2.1) is another leverage ratio that compares a company's total liabilities to its total shareholders' equity.
3.2.2) is a measurement of how much suppliers, lenders, creditors and obligors have committed to the company versus what the shareholders have committed.
3.2.3) To a large degree, this ratio provides another vantage point on a company's leverage position, in this case, comparing total liabilities to shareholders' equity, as opposed to total assets in the debt ratio.
3.2.4) Similar to the debt ratio, a lower the percentage means that a company is using less leverage and has a stronger equity position.
| Debt-Equity Ratio = | Total Liabilities |
| Shareholders' Equity |
3.3) Capitalization Ratio
3.3.1) measures the debt component of a company's capital structure, or capitalization (i.e., the sum of long-term debt liabilities and shareholders' equity) to support a company's operations and growth.
3.3.2) Long-term debt is divided by the sum of long-term debt and shareholders' equity.
3.3.3) is considered to be one of the more meaningful of the "debt" ratios - it delivers the key insight into a company's use of leverage.
3.3.4) There is no right amount of debt. Leverage varies according to industries, a company's line of business and its stage of development.
3.3.5) Nevertheless, common sense tells us that low debt and high equity levels in the capitalization ratio indicate investment quality.
| Capitalization Ratio = | Long term Debt |
| (Long term Debt + Shareholders\' Equity) |
3.4) Interest Coverage Ratio
3.4.1) is used to determine how easily a company can pay interest expenses on outstanding debt.
3.4.2) The ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) by the company's interest expenses for the same period.
3.4.3) The lower the ratio, the more the company is burdened by debt expense.
3.4.4) When a company's interest coverage ratio is only 1.5 or lower, its ability to meet interest expenses may be questionable.
| Interest Coverage Ratio = | EBIT |
| Interest Expense |
EBIT = Earnings Before Interest and Taxes
3.5) Cash Flow To Debt Ratio
3.5.1) this coverage ratio compares a company's operating cash flow to its total debt, which, for purposes of this ratio, is defined as the sum of short-term borrowings, the current portion of long-term debt and long-term debt.
3.5.2) provides an indication of a company's ability to cover total debt with its yearly cash flow from operations.
3.5.3) The higher the percentage ratio, the better the company's ability to carry its total debt.
| Cash Flow To Debt Ratio = | Operating Cash Flow |
| Total Debt |
Source: http://www.fncalculator.com/financialcalculator?type=financialRatios#
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