Calculation of leverage ratios, Financial Accounting

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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. 


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