Understanding The Leverage Ratio
most companies rely on a combination of owner's equity and debt to finance their operations. a leverage ratio is any of several measurements that look at how much capital comes in the form of loans or assesses a company's ability to meet financial obligations. perhaps the most popular leverage ratio is the debt to equity ratio. the calculation is simple. divide the company's total outstanding debt by the amount of shareholder equity. for example, leddy's office supply corporation has short term debt of $50,000 and long term debt of $25,000 which are divided by its shareholder equity of $75,000 to arrive at a leverage ratio of one. if all other factors are equal between two companies, the one with a lower ratio is usually considered the safer investment. that's because highly leveraged firms will often have greater difficulty paying their interest and principal payments going forward. typically, a debt to equity ratio above two indicates a relatively risky scenario for the investor. however, this ? can vary based on the industry. businesses that require large capital expenditures may need to take out more loans than other companies. it's a good idea to compare a leverage ratio to the firm's past performance and to its competitors to better understand the data. keep in mind that having too few ious can also raise questions. if a company's operations can generate a higher rate of return than an interest rate on its loans, then the debt is helping to build profit. a reluctance or inability to borrow may be a sign that operating margins are simply too tight.
- leverage ratio・・・レバレッジ比率
- debt to equity ratio・・・負債比率