FINE 2000 Lecture Notes - Intangible Asset, Financial Statement, Inventory Turnover
24 May 2012
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Leverage ratios show how heavily the company is in debt. Debt ratio: financial leverage measure by the ratio of long-term debt to total long-term capital. Long-term debt ratio= long-term debt+ value of leases/ long-term debt+ value of leases + preferred equity + common equity. Total debt ratio= total liabilities/ total assets. Time interest earned ratio: extent to which interest is covered by earnings. Banks prefer to lend to firms whose earnings are far in excess of interest payments. Cash coverage ratio: extent to which interest is covered by the cash from operations. Cash coverage ratio: ebit + depreciation and amortization/ interest payments. Fixed charge coverage ratio: how many times greater ebit plus depreciation and amortization is relative to the fixed charges the company is obliged to make. Liquidity ratios measure how easily the firm can lay its hands on cash. Liquidity: ability of an asset to be converted to cash quickly at low cost.
