Finance Leverage Ratio

Total Debts to Assets:

Provides information about the company’s ability to absorb asset reductions arising from losses without jeopardizing the interest of creditors.

Formula:

Total Liabilities
Total Assets

Capitalization Ratio:

Indicates long-term debt usage.

Formula:

Long-Term Debt
Long-Term Debt + Owners’ Equity

Debt to Equity:

Indicates how well creditors are protected in case of the company’s insolvency.

Formula:

Total Debt
Total Equity

Interest Coverage Ratio (Times Interest Earned):

Indicates a company’s capacity to meet interest payments. Uses EBIT (Earnings Before Interest and Taxes)

Formula:

EBIT
Interest Expense

Long-term Debt to Net Working Capital:

Provides insight into the ability to pay long term debt from current assets after paying current liabilities.

Formula:

Long-term Debt
Current Assets – Current Liabilities

 

Post Author: Muraya Muya