Calculation of Leverage ratios  -
		2008	2009	2010
U	EBIT or Operating Profit (Net)	660135	935835	1182927
V	Interest Expenses	56543	86809	114257
W	Equity	1277659	1690493	2257267
X	Total Assets	3103645	4049092	5131809
Y	Long term Liabilities	833303	1018308	1130779
Z	Current Liabilities	992683	1340291	1743763
A1	Net Fixed Assets	1319370	1695821	2226664
	Interest Coverage Ratio (U / V)	11.67	10.78	10.35
	Owner's Equity to Total Liabilities ( W / (Y + Z))	0.70	0.72	0.79
	Owner's Equity to Total Assets (W / X)	0.41	0.42	0.44
	Fixed Assets to Long Term Liabilities (A1 / Y)	1.58	1.67	1.97

The leverage position of the firm as shown by the above ratios seems not too bad, in the sense that the equity position of the firm as compared to the total assets and liabilities are showing continuous improvement over the last two years. i.e. the Owner's equity to Total liabilities and Total assets have shown improvement but marginally. There has been improvement in the long term liabilities position as compared to fixed assets i.e. the firm's degree of leverage has been declining marginally from 2008 to 2010.

Though the leverage position is not a burden for the company at this point of time, the interest paying capability of the firm has been deteriorating over the years. This is not good for the firm and the firm should take necessary actions for improving the same. 

Posted Date: 7/26/2012 5:59:50 AM | Location : United States

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