Page 27 - FINAL CFA I SLIDES JUNE 2019 DAY 9
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Session Unit 8:
31. Non-Current (Long-Term) Liabilities
LOS 31.k: Calculate and interpret leverage and coverage ratios., p.294
Leverage Ratios, p.294
For calculating these ratios, “debt” refers to interest-bearing obligations. Non-interest bearing liabilities,
such as accounts payable, accrued liabilities, and deferred taxes, are not considered debt.
• Debt-to-assets ratio = total debt / total assets.
• Debt-to-capital ratio = total debt / (total debt + total equity).
(similar to the debt-to-assets ratio, except that total capital excludes non-interest bearing
liabilities) tanties
• Debt-to-equity ratio = total debt / total equity.
• Financial leverage ratio = average total assets / average total equity (measure of leverage used in the
DuPont formula)
Coverage Ratios, p.295
• Interest coverage = EBIT / interest payments.
• Fixed charge coverage = (EBIT + lease payments) / (interest payments + lease payments).
