A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt, or that assesses the ability of a company to meet financial obligations.
 | | Leverage Ratio | | A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt (loans), or assesses the ability of a company to meet its financial obligations. The leverage ratio is important given that companies rely on a mixture of equity and debt to finance their operations, and knowing the amount of debt held by a company is useful in evaluating whether it can pay its debts off as they come due. | | Breaking it Down: | | Too much debt can be dangerous for a company and its investors. However, if a company's operations can generate a... | | Read More » | | Related to "Leverage Ratio" | | | | Understanding Leverage Ratios | | Large amounts of debt can cause businesses to become less competitive and, in some cases, lead to default. To lower their risk, investors use a variety of leverage ratios - including the debt, debt-to-equity and interest coverage ratios - to identify firms with unhealthy debt levels. | | Read More » | | | Capital Structure | | Capital structure is how a firm funds its operations and growth, combining long-term debt, specific short-term debt, common equity and preferred equity. | | Read More » | | | Long-Term Debt | | Long-term debt consists of loans and financial obligations lasting over one year. Long-term debt for a company would include any financing or leasing obligations that are to come due after a 12-month period. | | Read More » | | | Equity Multiplier | | The ratio of a company's total assets to its stockholders' equity. The equity multiplier is a measurement of a company's financial leverage. | | Read More » | | | Debt/Equity Ratio | | The Debt/Equity (D/E) ratio indicates how much debt a company is using to finance its assets relative to the value of shareholders' equity. | | Read More » | | |  | | | | CONNECT WITH INVESTOPEDIA | | | | | | | |
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