Leverage

Calculate and Interpret the Equity Multiplier Ratio

The equity multiplier ratio is used to measure a company’s total assets against stockholder’s equity, providing a way for investors to examine the level to which a company uses debt to finance its assets. A high equity multiplier indicates a more highly-leveraged company. The equity multiplier, like other leverage ratios, can help investors [...]

Calculate and Interpret the Debt-to-Assets Ratio

The debt-to-assets ratio or “total debt to total assets” ratio is used to measure the overall financial health of a company by determining the level to which the company has financed its assets through debt. In general, the higher the debt-to-assets ratio, the greater the risk the company will run into financial issues. [...]

Calculate and Interpret the Times Interest Earned Ratio

The Times Interest Earned Ratio is used to measure a company’s ability to meet interest payments on its debt. Also referred to as the “interest coverage” or fixed-charge coverage”, the ratio provides an indication to lenders and investors as to whether the company is likely to run into any financial trouble. A high [...]

How to Calculate and Interpret the Debt-to-Equity Ratio

The debt-to-equity ratio measures the relative proportion of equity and debt used to finance a company’s assets. The ratio provides an indication of the relationship between the capital contributed by creditors and that contributed by shareholders. A high ratio typically would demonstrate that the company has aggressively financed its growth through debt. The resulting interest [...]