Page 30 - DBP5043

3. LEVERAGE RATIOS

- REFER TO THE USE OF BORROWED CAPITAL OR LOANS.

Types of ratio Definition Formula Indicator

A) Debt ratio Measure the ( The lower

level of debt of + ) ↓ the better,
borrowings in a minimum
firm. Unit = % debt of

borrowing

Measure the The lower

B) Debt to percentage of the better,

equity ratio borrowings ↓ minimum
used compare Unit = 1 debt of
with total borrowing

equity.

The higher

C) Times Measures the ↑ the ratio
interest firm’s ability to the higher

earned cover its is the firm’s
interest ability to
charges out of fulfill

operating interest
profits obligation