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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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