leverage ratios

Question 1

what is the Debt Ratio and what does it show?

Answer 1

Debt Ratio = Total Liabilities / Total Assets
Measures the portion of company assets that is financed by debt (obligations to third parties). Debt ratio can also be computed using the formula: 1 minus Equity Ratio.

Question 2

what is the equity Ratio and what does it show?

Answer 2

Equity Ratio = Total Equity / Total Assets
Determines the portion of total assets provided by equity (i.e. owners’ contributions and the company’s accumulated profits). Equity ratio can also be computed using the formula: 1 minus Debt Ratio.
The reciprocal of equity ratio is known as equity multiplier, which is equal to total assets divided by total equity.

Question 3

what is the debt equity Ratio and what does it show?

Answer 3

debt-Equity Ratio = Total Liabilities / Total Equity
Evaluates the capital structure of a company. A D/E ratio of more than 1 implies that the company is a leveraged firm; less than 1 implies that it is a conservative one.

Question 4

what is the Dividend Pay-out Ratio and what does it show?

Answer 4

Dividend Pay-out Ratio = Dividend per Share / Earnings per Share
Determines the portion of net income that is distributed to owners. Not all income is distributed since a significant portion is retained for the next year’s operations.