Leverage Ratios Assignment Help, Leverage Ratios Tutoring

Leverage Ratios Homework Help, Leverage Ratios Tutor Help
Leverage Ratios:
Long term creditors of a firm are interested to know the long term financial strength,
solvency and soundness of the firm which can be measured by the firm’s ability to
pay the interest regularly on due dates and repay the principal sum in installments
or at maturity as defined in the agreement. We can gauge from the above that the
long term solvency of the firm has two aspects to it; ability to repay principal
when due and payment of interest regularly. The Capital Structure/leverage ratios
may be defined as those financial ratios which measure the long term stability and
structure of the firm. These ratios indicate the mix of funds provided by owners
and lenders and assure the lenders of the long term funds with regard to:
- Periodic payment of interest during the period of loan and
- Repayment of principal amount on maturity
When we extend this analysis to the long-term solvency of a firm, we have two types
of leverage ratios.
- Structural ratios
- Coverage ratios
Structural ratios:
Structural ratios are based on the proportions of debt and equity in the capital
structure of the firm and provide an insight into the financing techniques used
by the firm. These ratios, which are calculated from the items in the balance sheet,
are:
- Debt to Equity ratio
- Debt to Assets ratio
- Debt ratio
- Equity ratio
Coverage ratios:
Coverage ratios are derived from the relationships between debt servicing commitments
and sources of funds for meeting these obligations. They measure the ability of
the firm to service fixed liabilities. Various coverage ratios include:
Debt Service Coverage ratio
Debt Service Coverage ratio
- Interest Coverage ratio
- Capital Gearing ratio
- Fixed Charge Coverage ratio
- Preference Dividend Coverage ratio
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