The debt ratio of an enterprise is a characteristic number relating to the balance. It indicates the relationship from outside capital to own capital funds of an enterprise. This relation is one of the relevant factors with the Rating of enterprises the role plays. With rising debt ratio a degradation of the credit conditions usually accompanies.

Is

• U an enterprise, whose liabilities consist only of priority outside capital and subordinate own capital funds,
• EK \ left (U \ right) own capital funds of the enterprise U,
• Fiber plastic \ left (U \ right) the outside capital of the enterprise U,
• V \ left (EK \ left (U \ right) \ right) the market value of own capital funds of the enterprise U,
• V \ left (fiber plastic \ left (U \ right) \ right) the market value of the outside capital of the enterprise U,

Then \ rho \ left (U \ right) = \ frac {V is \ left (fiber plastic \ left (U \ right) \ right)}{V \ left (EK \ left (U \ right) \ right)} the debt ratio of the enterprise And.

The debt ratio \ rho \ left (U \ right) is unitless and it applies: \ rho \ (U \ right) \ in \ mathbb {R} ^+_0 left.

A so defined debt ratio of an enterprise presupposes a sharp separation between own and outside capital of the enterprise. To that extent the debt ratio of an enterprise requires special appreciation, if the enterprise spent conversion loans or other financing titles, which cannot be assigned so easily clearly to own capital funds or outside capital.

A high debt ratio of an enterprise implies that the enterprise is strongly dependent on external creditors.

In addition, a high debt ratio of an enterprise means that the enterprise can afford a large financial leverage, i.e. by admission of debts its yield on equity to increase can (Leverage effect). However the enterprise must obtain lastingly high influxes of funds from the current business activity, so that outside capital givers are ready to finance the enterprise with capital.

Articles in category "Debt ratio"

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