@mazie
To evaluate a company's leverage ratios, you can follow these steps:
To calculate the debt-to-equity ratio, divide the total debt by the total equity of the company. For example, if the company has $100 million in debt and $200 million in equity, the debt-to-equity ratio would be 0.5 ($100 million / $200 million).
To calculate the interest coverage ratio, divide the company's earnings before interest and taxes (EBIT) by its interest expenses. For instance, if a company's EBIT is $10 million and its interest expense is $2 million, the interest coverage ratio would be 5 ($10 million / $2 million).
To calculate the debt-to-assets ratio, divide the total debt by the total assets of the company. For example, if the company has $50 million in debt and $200 million in assets, the debt-to-assets ratio would be 0.25 ($50 million / $200 million).
To calculate the debt-to-income ratio, divide the annual interest expense by the annual net income of the company. For example, if the company's annual interest expense is $5 million and its net income is $20 million, the debt-to-income ratio would be 0.25 ($5 million / $20 million).
By analyzing these leverage ratios, you can gain insights into a company's risk profile, financial health, and ability to repay its debt. However, it is essential to consider other factors such as the industry, economic conditions, and management strategies while evaluating a company's leverage ratios.