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

Make and buy, The Rohr Company’s old equipment for making subassemblies is ...

The Rohr Company’s old equipment for making subassemblies is worn out. The company is considering two courses of action: (a) Completely replacing the old equipment with new equipme

Determine the stages in activity based costing, Stages in activity based co...

Stages in activity based costing The different stages in activity based costing are listed below and are shown in figure below. 1) Identification of the activities that may

The role of computers in simulation, The Role of Computers in Simulation ...

The Role of Computers in Simulation Computers can be used to: 1) To generate the random numbers 2) To simulate thousands of trials. This is done extremely fast, accuratel

Problem 18.4A Process Costing with No Beginning or E, Ask question Toll Hou...

Ask question Toll House makes chocolate chip cookies. The cookies pass through three production processes: mixing the cookie dough, baking, and packaging. Toll House uses process c

Introduction to Management Accounting, What is Costco''s Financial decision...

What is Costco''s Financial decisions, Centralized or decentralized?

Determine the benefit of product life cycle costing, Benefit of product lif...

Benefit of product life cycle costing The benefits of product life cycle costing are summarized as follows: 1) The product life cycle costing results in earlier actions to g

Comparing between real and planned outcomes , Comparing real and planned ou...

Comparing real and planned outcomes and responding to Divergences from Plan The final phases in the process outlined in figure shown below of comparing real and planned outcome

Determine the absolute liquid ratio - liquidity ratios, Absolute liquid rat...

Absolute liquid ratio - Liquidity ratios Although receivables debtors and bills receivable are usually more liquid than inventories yet there may be doubts regarding their rea

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