Читать книгу Entrepreneurial Finance - Robert D. Hisrich - Страница 53

A company's leverage ratio measures how much debt the firm has on its balance sheet. Leverage ratios represent another measure of financial health. Generally, the more debt a company has, the riskier its stock is. This escalating risk comes from two primary impacts that accompany higher debt: (1) the firm's breakeven point goes up because of the higher fixed costs associated with the debt, and (2) the volatility of return on equity becomes less predictable and more volatile when debt increases.

The debt to equity ratio measures how much of the company is financed by its debt holders compared with the equity contribution of its owners (shareholders). A company with a lot of debt will have a high debt to equity ratio, while one with little debt will have a low debt to equity ratio. Assuming everything else is identical, companies with lower debt to equity ratios are less risky than those with higher such ratios. The debt to equity ratio is calculated as follows:

Also known as the debt ratio, the debt to total assets ratio can be interpreted as the portion of a company's assets that is financed by debt. The higher this ratio, the more leveraged the company and the greater its financial risk. (We discuss financial risk in greater detail in Chapter 11.) Debt ratios vary widely across industries, with capital-intensive businesses such as utilities and pipelines having much higher debt ratios than other industries like technology. A debt ratio of greater than 1 indicates that a company has more debt than assets. The debt to total assets ratio is

The interest coverage ratio (also known as the times interest earned ratio) compares the firm's operating earnings to its interest expense; the more the firm can produce in operating profit to cover its interest expense, the lower the risk of defaulting on its debt. It is calculated as follows:

A stricter version of the interest coverage ratio is the fixed charges coverage ratio, which is calculated as

The fixed charges coverage ratio relates the interest and fixed charge payment that the firm is required to pay to the funds that the firm has available to pay them with. Fixed charges are expenses that are incurred and must be paid regardless of sales, profits, or production.