Leverage ratio is defined as the proportion of debt out of total capital. This in other words tells us the business’s ability to meet its obligations. The leverage ratios are of multiple types.
The most commonly used leverage ratios are:
1. Debt-to-Equity Ratio = Total Liabilities / Total Shareholders’ Equity
This ratio tells us how many times a total debt is of the total equity in a business. The higher this ratio is the more leveraged the business is considered.
2. Debt to total assets ratio = Total Liabilities / Total Assets
Debt to total asset ratio is also a leverage ratio and again tell the percentage of total debt in total assets.
3. Degree of financial leverage = EBIT / (EBIT – Interest)
This ratio shows how leveraged the profits are with respect to interest related to debt. The higher the ratio is means the more vulnerable earnings are.
KMS corporation has assets of $500 million, $50 million
Bank A has a leverage ratio of 10, while Bank B
A bank has capital of $200 and a leverage ratio of
Thursday, October 24, 1929, easily ranks as the most
How does the leverage ratio influence a financial institution’s stability in response
Two depository institutions have composite CAMELS ratings of 1 or 2 and
A bank has capital of $200 and a leverage ratio of
Valero Energy, a petroleum company, reported net income (amounts
Give an example of a bank balance sheet with a leverage ratio
Webb Bank has a composite CAMELS rating of 2, a total