Ilustrate the debt equity ratio, Managerial Accounting

Assignment Help:

Debt equity ratio

Meaning: this ratio establishes a relationship among long term debts and share holders funds.

Objective: the objective of computing this ratio is to measure the relative proportion of debt and equity in financing the assets of a firm.

Components: there are two components of this ratio which are as under:

Long term debts: which mean long term loans (whether secured or unsecured (e.g., debentures bonds loans from financial institutions).

Shareholders funds: which mean equity share capital plus preference share capital plus reserves and surplus minus fictitious assets(e.g., preliminary expenses)

Computation: this ratio is computed by dividing the long term debts by the shareholders funds. This ratio is usually expressed as a pure ratio e.g, 2:1. in the form of a formula this ratio may be expressed as under:

Interpretation: it shows the margin of safety to long term creditors. A low debt equity ratio implies the use of more equity than debt which mean a larger safety margin for creditors since owner equity is treated as a margin of safety by creditors and vice versa.

 

 


Related Discussions:- Ilustrate the debt equity ratio

????? ?? ????, ???? ????? ???? ???? ??????? ???? ??????? ??????? ???. ???? ...

???? ????? ???? ???? ??????? ???? ??????? ??????? ???. ???? ?????? ?????? ?????: (?) ??????? ??????? ??????? ????? ?? ????? ????? ?? (?) ???? ??????? ??????? ?? ???? ???? ????? ?

Explain kaizen costing, Explain Kaizen costing It is a Japanese method...

Explain Kaizen costing It is a Japanese method used to manage cost during a product s planning and design stages and has been used by some Japanese firms for over twenty years

What is competition oriented pricing policy, Competition oriented pricing p...

Competition oriented pricing policy Most companies fix the price of their products after a careful consideration of the competitor's price structure. Deliberate policy may be f

draw a timeline for the assembly department, #queComputing equivalents uni...

#queComputing equivalents units and assigning costs to completed units and ending work in process; no beginning inventory or cost transferred in (30 -45min) Sue Electronics makes

Innova uses 1, Innova uses 1,056 units of the component IMC2 every month to...

Innova uses 1,056 units of the component IMC2 every month to manufacture one of its products. The unit costs incurred to manufacture the component are as follows. Direct material

What are the limitation of break even charts, Limitation of break even char...

Limitation of break even charts Despite many advantages a break even chart suffers from the following limitations: 1) A break even chart is based upon a number of assumption

Cash collection and disbursements, Once the cash budget has been arranged a...

Once the cash budget has been arranged and suitable net cash flows established the finance manager must ensure that there does not exists an important deviation in between actual a

Jit purchasing arrangements-jit benefits, JIT purchasing arrangements J...

JIT purchasing arrangements JIT philosophy also extends to adapting JIT purchasing techniques whereby delivery of material immediately precedes their use. By arranging with sup

Determine the need and importance of management accounting, Determine the N...

Determine the Need and importance of management accounting: 1.Increasing efficiency: management accounting increases efficiency of business operations. The targets of differe

Cvp, THE BREAK EVEN POINT

THE BREAK EVEN POINT

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd