How do you evaluate a company's leverage ratios?

@mazie 

There are several ways to evaluate a company's leverage ratios. Here are a few common methods:

1. Debt-to-Equity Ratio: This ratio compares a company's total debt to its shareholders' equity. It is calculated by dividing total debt by total equity. A higher debt-to-equity ratio indicates higher financial risk, as it means the company has a significant amount of debt compared to its equity.
2. Debt Ratio: This ratio measures the proportion of a company's assets that are financed by debt. It is calculated by dividing total debt by total assets. A higher debt ratio suggests a higher reliance on debt to finance operations, which can indicate increased financial risk.
3. Interest Coverage Ratio: This ratio evaluates a company's ability to meet interest payments on its debt. It is calculated by dividing the company's earnings before interest and taxes (EBIT) by its interest expense. A higher interest coverage ratio signifies a better ability to cover interest payments and suggests lower financial risk.
4. Debt-to-Capital Ratio: This ratio examines the proportion of a company's capital structure that is financed by debt. It is calculated by dividing total debt by the sum of total debt and total equity. A higher debt-to-capital ratio indicates a higher level of debt relative to the company's total capital.
5. Debt Service Coverage Ratio: This ratio determines a company's ability to meet its debt obligations, including interest and principal repayments. It is calculated by dividing a company's operating income by its total debt service (principal and interest payments). A higher debt service coverage ratio indicates a better ability to service its debt.
6. Equity Ratio: This ratio measures the proportion of a company's assets that are financed by equity. It is calculated by dividing total equity by total assets. A higher equity ratio suggests lower reliance on debt and lower financial risk.

It is essential to evaluate these ratios in conjunction with industry benchmarks and consider the specific circumstances and nature of the company's operations for a more comprehensive analysis.