To a large degree the debt equity ratio provides another vantage point on a

To a large degree the debt equity ratio provides

This preview shows page 13 - 15 out of 15 pages.

To a large degree, the debt-equity 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. Similar to the debt ratio, a lower the percentage means that a company is using less leverage and has a stronger equity position. Long Term Debt Equity Ratio
Image of page 13
The long - term debt to equity ratio is a method used to determine the leverage that a business has taken on. To derive the ratio , divide the long - term debt of an entity by the aggregate amount of its common stock and preferred stock. 4. Debt Coverage Ratios Debt Coverage Ratios Interest Cover 10.82 15.98 15.55 Total Debt to Owners Fund 0.31 0.35 0.38 Financial Charges Coverage Ratio 12.88 19.08 19.45 Financial Charges Coverage Ratio Post Tax 10.28 15.65 16.07 The debt service coverage ratio ( DSCR ) is defined as net operating income divided by total debt service. Interest Coverage Ratio The interest coverage ratio is used to determine how easily a company can pay interest expenses on outstanding debt. 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. The lower the ratio, the more the company is burdened by debt expense. When a company's interest coverage ratio is only 1.5 or lower, its ability to meet interest expenses may be questionable. Total Debt to Owners Fund The debt-to-capital ratio is calculated by taking the company's interest-bearing debt , both short- and long-term liabilities and dividing it by the total capital . Total capital is all interest- bearing debt plus shareholders' equity, which may include items such as common stock,
Image of page 14
preferred stock, and minority interest. Fixed charge coverage ratio The fixed charge coverage ratio is a financial ratio that measures a firm's ability to pay all of its fixed charges or expenses with its income before interest and income taxes . The fixed charge coverage ratio is basically an expanded version of the times interest earned ratio or the times interest coverage ratio .
Image of page 15

You've reached the end of your free preview.

Want to read all 15 pages?

  • Fall '19
  • Generally Accepted Accounting Principles, Mohit Bros

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes