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Long Term Lenders - Measuring Business Performance
Long term lenders
These involve finances with loans, mortgages and debenture holders. These have both short and long term interest in the company and its capability to pay not only interest on debt although also principal as and whenever it falls due. These parties are interested in the given as:
a) Liquidity ratios - utilized for to assess short-term liability to meet recent obligations.
b) Profitability ratios - utilized for to ascertain where the company can pay its principal back.
c) Gearing ratio - utilized for to gauge the company's dangerous in the investment.
d) Investment coverage ratio - exposes the company's safety like regards the payment of interest to the lenders of the debt.
Example of Debt Finance An example: Interest = 10% tax rate = 30% The effective cost of debt (interest) = Interest rate (1 - T) = 10%(1-0.30) = 7% Consider comp
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