# Financial Leverage Ratios

A company capital structure can be a mix of common equity, preferred equity, long term debt and short-term debt. Debt to equity (D/E) ratio and Interest coverage ratio are most commonly used to assess the risk associated in the business. Some of the most commonly used financial leverage ratios - debt to equity (D/E) ratio, debt ratio and interest coverage ratio. Select a ratio calculator and key in the required values to get the desired result:

1. ##### Debt to Equity (D/E) Ratio Calculator
Debt to equity ratio measures the riskiness of a company's financial structure. It indicates the relative proportion of shareholders' equity and debt used to finance a company's assets. Try now…

How to calculate?
Formula: Debt to Equity Ratio = Total Liabilities/Total Equity
This is a balance sheet component; the values are commonly stated against Total Liabilities and Total Equity.

Total Liabilities:
Total Liabilities is the source of the funds such as short term and long-term external borrowing that is mainly used to fund its asset purchase.

Total Equity:
Total equity is the amount invested by shareholders of the company.

Example:
Debt to equity (D/E) ratio for a company with a total liability of \$360,000 and total equity of \$720,000 is 0.5:1. It means that, the company has an exposure of 50% in the form of total liabilities to total equity. In other words, the assets of the company are funded 2-to-1 by investors to creditors.
2. ##### Debt Ratio Calculator
Debt ratio are used to compare debt (total liabilities) to its total assets. It shows proportion of a company's assets that financed by debt. Try now…

How to calculate?
Formula: Debt Ratio = Total Liabilities/Total Assets
This is a balance sheet component; the values are commonly stated against Total Liabilities and Total Assets.

Total Liabilities:
Total Liabilities is the source of the funds such as short term and long-term external borrowing that is mainly used to fund its asset purchase.

Total Assets:
Total assets are the sum of all current and noncurrent assets that a company owns.

Example:
Debt ratio for a company with a total liability of \$30,000 and total assets of \$100,000 is 0.36:1. It means that, 36% of its assets are financed by debt.
3. ##### Interest Coverage Calculator
Interest Coverage Ratio are used to determine the ability of a company to pay the interest on its outstanding debt. Try now…

How to calculate?
Formula: Interest Coverage Ratio = Earnings Before Interest and Tax (EBIT)/Interest Expense
This is an income statement component; the values are commonly stated against EBIT and Interest Expense.

Earnings Before Interest & Tax (EBIT):
Profit before deducting all its interest & taxes.

Interest Expense:
Interest expense is the cost of debt - the amount paid for servicing the amount borrowed by the company.

Example:
Interest coverage ratio for a company with a net income of \$100,000 and interest expense of \$25,000 is 4 times. It can meet its interest payments 4 times of its earnings. Interest coverage ratio lower than 1.5 times means a company is vulnerable and may face difficulties to meet its interest payments.