Capital structure/Gearing Flashcards
Equity Ratio / Financial leverage
Total Equity1/Total Assets1
1/Equity Multiplier
how much of company’s total assets are financed by owners’ investments
benchmark>20%
Debt ratio/ financial leverage
Total liabilities1/Total Assets1
how many assets must the company sell to pay off its liabilities
benchmark <80%
Debt-to-Equity ratio/ financial leverage
Total liabilities1/Total Equity1
how many times there are liabilities than equity in the company
benchmark: industry specific
Equity multiplier/Financial leverage
Total Assets1/Total Equity1
1/Equity Ratio
How many times assets are higher than shareholder’s equity
benchmark: <5
Interest coverage
EBIT1/Interest Expenses1
How many times a company can pay off its interest using EBIT.
benchmark >5, while Dib/EBITDA<5
Debt ratio through Debt-to-equity ratio
Debt-to-Equity Ratio/(Debt-to-Equity Ratio + 1)
(Let’s call Debt-to-Equity Ratio DER and Debt ratio - DR:
DR= TL/TA= TL/(TL+TE)
DER=TL/TE –> TL= DER * TE
DR = DER* TE / (DER*TE +TE) = DER/(DER+1)
)