Leverage or gearing ratios, Finance Basics

Leverage or Gearing Ratios

Leverage or gearing ratios are as follow:

a) Debt ratio = Total debts/Total assets

Whereas total debt = fixed charge capital + liabilities.

The ratio signify the proportion of total assets such has been financed with long term and current liabilities as a debt ratio of 0.45 mean 45% of net asset has been financed along with debt though the remaining 55% was financed along with owners equity/capital.

b) Times interest earned ratio  = Operating profit (earnings before interest and tax)/ Interest Charges

TIER called also interest coverage ratio.

These ratios signify the number of times interest charges can be paid from operating advantages. The higher the TIER, such better the firm signifying that either the firm has its interest charges are low or high operating profits.

Whether TIER is high due to low interest charges, so these signify low level of gearing/debt capital of the firm.

Posted Date: 1/30/2013 2:03:37 AM | Location : United States







Related Discussions:- Leverage or gearing ratios, Assignment Help, Ask Question on Leverage or gearing ratios, Get Answer, Expert's Help, Leverage or gearing ratios Discussions

Write discussion on Leverage or gearing ratios
Your posts are moderated
Related Questions
Liquidity Preference Theory This theory states that short term bonds are extremely favorable than long term bonds for two (2) purposes. 1. Investors usually prefer short te

Dow theory elliot wave theory

Why do several critics say the CAPM model is not suitable in an international setting? Please describe a way that the CAPM model could be adapted for international applications.

What is the effective annual cost of skipping the discount and paying at the end of the net period for the following credit terms: 6/10, net 70? please show work"

Shareholders' wealth maximization - Objectives of Business Entity Shareholders' wealth maximization refers to maximization of the total present value of each decision made in

A paper mill produces two grades of paper viz., X and Y. Because of raw material restrictions, it cannot produce more than 400 tons of grade X paper and 300 tons of grade Y paper i


Advantage of Bill - Source of Finance Advantages of necessitating a Bill as a Source of Finance They are a faster means of raising finance whether drawer is credible.

models of solving externalities in 1) external sector 2)private sector

Charleston Industrial revised its dividend policy and decided that it wants to maintain a retained earnings account of $1 million. The company''s retained earnings account at the e