Low Debt Ratio: How Does it Contribute to Company Performance? Introduction
It has been said that you must measure what you expect to manage and accomplish. The same is true when one considers business performance. In a business measurement drives improvement which drives satisfaction. In turn, satisfaction results in loyalty from customers which means the financial success of a business. Without measurement, one has no reference to work with and thus, tends to operate in the dark. One way of establishing references and managing the financial affairs of an organization is to use ratios. Ratios are simply relationships between two financial balances or financial calculations. These relationships establish our references so we can understand how well we are performing financially. Ratios also extend our traditional way of measuring financial performance; i.e. relying on financial statements. By applying ratios to a set of financial statements, we can better understand financial performance. Statement of the Problem

The debt ratio compares a company's total debt (the sum of current liabilities and long-term liabilities) to its total assets (the sum of current assets, fixed assets, and other assets such as 'goodwill'), which is used to gain a general idea as to the amount of leverage being used by a company. It compares the funds provided by creditors to the funds provided by shareholders and gives a quick measurement of the amount of debt that the company has on its balance sheet. As more debt is used, the Debt to Equity Ratio will increase. Since we incur more fixed interest obligations with debt, risk increases. On the other hand, the use of debt can help improve earnings since we get to deduct interest expense on the tax return. It is ideal to balance the use of debt and equity such that we maximize our profits, but at the same time manage our risk. It is said that companies with low debt ratios perform better than companies with high debt ratios. Before...

...Debt/Equity Ratio
What DoesDebt/Equity Ratio Mean?
A measure of a company's financial leverage calculated by dividing its total liabilities by its stockholders' equity; it indicates what proportion of equity and debt the company is using to finance its assets.
http://financial-dictionary.thefreedictionary.com/debt%2Fequity+ratio
'Debt/EquityRatio'
A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense.
If a lot of debt is used to finance increased operations (high debt to equity), the company could potentially generate more earnings than it would have without this outside financing. If this were to increase earnings by a greater amount than the debt cost (interest), then the shareholders benefit as more earnings are being spread among the same amount of shareholders. However, the cost of this debt financing may outweigh the return that the company generates on the debt through investment and business activities and become too much for the company to handle. This can lead to bankruptcy, which would leave...

...tools that a company can use to evaluate how well it is performing, one of those tools is the debtratio calculation. The debtratio shows the proportion of assets financed with debt, liabilities. It is calculated by the companies total liabilities divided by its total assets and is used as a percentage. Total assets and total debts can be found on the balance sheet. “It can be used to evaluate a business’s ability to pay its debt” (Nobles p. 89).
The debtratio can be used to evaluate a business’s ability to pay it’s debts. An investor will want to know what percentage a business is at because it helps determine a company's risk level. The higher the debtratio, the higher the risk. “Companies that have a high percentage of liabilities are at greater risk of default. If they are unable to pay their creditors as the amounts become due, the creditors have the right to claim the assets” (Nobles p. 90). As the ratio number moves closer to 1, more of a company’s assets are then being financed by debt therefore more likely moving closer to bankruptcy. The debtratio is not just a good or bad number, “high” and “low” ratios vary by industry. “Debt...

...Financial Ratios are useful indicators of how a company can show their performance measures and financial situation. These ratios are calculated by the information that is obtained from the financial statements of the business. These ratios can help analyze trends and compare the business financials to those of other like companies. Sometimes ratio analysis can predict future bankruptcy. These ratios can be shown as the following: Liquidity, financial leverage, asset turnover , profitability, debt service coverage, and market value.
Liquidity ratios show the current ratio which is equal to dividing current assets by current liabilities. Short term creditors prefer a high current ratio since it reduces their risk. Shareholders prefer a lower current ratio so that the firms assets are working to grow the business.
Quick ratios are alternative measure of liquidity that does not include inventory in the current assets. This is shown by current assets minus inventory divided by current liabilities
Leverage
Debtratio is total debt divided by total assets
Debt to equity ratio is total debt divided by total equity
Times interest earned is interest coverage is equal...

...`
Al-Balqa' Applied University
Amman College
MBA Department
Profitability Ratios to Measure The Performance of JORDAN CEMENT COMPANY
FINANCIAL MANAGEMENT
Doctor: Ahmad Al-Mazari
Prepared by:
علاء محمود عبدالله سليمان
فادي نجم سعيد نجم
INDEX
Objective 3
Hypotheses 4
Importance 5
Introduction 6
Financial Ratios 10
LiquidityRatios 11
Return on Investment 13
Return on Shareholders' Equity 14
Data Analyses 15
Current Ratio 15
Quick Ratio 16
Return on Investment 17
Return on Equity 17
Result 18
Recommends 1
Profitability Ratios to Measure The Performance of JORDAN CEMENT COMPANY
M
ost companies have problem in financial management in this age, that problem coming from losing control assets and liabilities or lead the profit as it should be. Cause that we will try to find strength point in JORDAN CEMENT and protect them as we will find the weakness point too and try to fix them too, to make JORDAN CEMENT Leader Company in Jordan market specially and more effectively treading with world in generally.
Objective:
1. Improve strategic financial management.
2. Know which elements in financial...

...Performance evaluation and ratio analysis of Pharmaceutical Company in Bangladesh
Faruk Hossan Md Ahsan Habib
Supervisor: José Ferraz Nunes Examiner: Bengt Kjellén
Master‟s thesis in international Business 15 ECTS Department of Economic and Informatics University West Spring term 2010
0
ABSTRACT
The thesis applies performance evaluation of pharmaceutical company in Bangladesh. It means evaluatehow well the company performs. The main aim is achieved through ratio analysis of two pharmaceutical (Beximco and Square pharmaceutical) companies in Bangladesh. The main data collection from the annual financial reports on Beximco and square pharmaceutical companies in 2007 to 2008.Different financial ratio are evaluated such liquidity ratios, asset management ratios, profitability ratios, market value ratios, debt management ratios and finally measure the best performance between two companies. The mathematical calculation was establish for ratio analysis between two companies from 2007-2008.It is most important factors for performance evaluation. The graphical analysis and comparisons are applies between two companies for measurement of all types...

...A. Debt Management Ratios (Leverage Ratios)
The extent to which a firm uses debt financing, or financial leverage, has three important implications:
1. By raising funds through debt, stockholders can maintain control of a firm while limiting their investment
2. Creditors look to the equity, or owner-supplied funds, to provide a margin of safety, so the higher the proportion of the total capital that was provided by stockholders, the less the risk faced by creditors
3. If the firm earns more on investments financed with borrowed funds than it pays in interest, the return on the owners’ capital is magnified, or “leveraged.
To understand better how financial leverage affects risk and return, consider the sample table below. Here we analyze two companies that are identical except for the way they are financed. Firm U (for “unleveraged”) has no debt, whereas Firm L (for “leveraged”) is financed with half equity and half debt that costs 15 percent. Both companies have $100 of assets and $100 of sales, and their expected operating income (also called earnings before interest and taxes, or EBIT) is $30. Thus both firms expect to earn $30, before taxes, on their assets. Of course, things could turn out badly, in which case EBIT would be lower. Thus, in the second column of the table, we show EBIT declining from $30 to $2.50 under bad...

...DebtRatioDebtRatio
• defined as the ratio of total debt to total assets,
expressed in percentage, and can be interpreted as the
proportion of a company’s assets that are financed by
debt.
• Measures the proportion of total assets financed by the
firm’s creditors. The higher this ratio, the greater amount
of other people’s money being used to generate profits.
Formula:
• The debtratio is calculated by dividing total debt by total
assets.
DebtRatio
=
Total Debt
Total Assets
Examples
• Dave's Guitar Shop is thinking about building an addition onto the
back of its existing building for more storage. Dave consults with his
banker about applying for a new loan. The bank asks for Dave's
balance to examine his overall debt levels.
• The banker discovers that Dave has total assets of $100,000 and total
liabilities of $25,000. Dave's debtratio would be calculated like this:
Total liabilities include both the current and
non-current liabilities.
• Example 2: Current liabilities are $34,600; Non-current
liabilities are $200,000; and Total assets are $504,100.
Calculate debtratio.
• Solution
Since total liabilities are equal to sum of current and noncurrent liabilities therefore,
Debt...

...Ratio Analysis
Ratio analysis is basically used to understanding the financial health of a business entity. With the help of ratios we can easily calculate from current year performance of the companies and are then compared to previous years. Ratio analysis conducts a quantitative analysis of information in a company’s financial statements. These Ratios are most commonly used in banking sector can be divided into five main categories
Liquidity Ratios
Leverage Ratios
Profitability Ratios
Activity Ratios
Market Ratios
A) Liquidity Ratios
Liquidity Ratios are used to determine a company's ability to meet its short terms obligations.
These include;
1) Current Ratio
2) Acid Test Ratio
3) Working capital
Current Ratio
What Does Current Ratio Mean?
A liquidity ratio that measures a company's ability to pay short-term obligations. Also known as "liquidity ratio", "cash asset ratio" and "cash ratio".
OR
It is a measure of general liquidity and is most widely used to make the analysis for short term financial position or liquidity of a firm. It is calculated by dividing the total of the current assets by total of the current liabilities....

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