DEBT RATIO measures the percent of total funds provided by creditors. Debt includes both current liabilities and long-term debt. Creditors prefer low debt ratios because the lower the ratio, the greater the cushion against creditors losses in liquidation. Owners may seek high debt ratios, either to magnify earnings or because selling new stock would mean giving up control. Owners want control while "using someone elses money." Debt Ratio is best compared to industry data to determine if a company is possibly over or under leveraged. The right level of debt for a business depends on many factors. Some advantages of higher debt levels are:
Some disadvantages can be:
Formula: Total Liabilities / (Total Liabilities + Stockholders Equity)
SMOOTHING is a widely used technique in forecasting trends, seasonality and level change, e.g. averaging month-to-month fluctuations. Works well with data that has a lot of randomness.
ABNORMAL EXPENSE see EXTRAORDINARY ITEMS.
Enter a term, then click the entry you would like to view.