Debt management ratios - Introduction

Debt analysis is concentrated on the assessment of the structure of company's capital (liabilities). Two groups of ratios are distinguished in this analysis: indebtedness analysis ratios and debt coverage analysis ratios. Indebtedness  ratios are based on the analysis of capital structure including its sources (own, foreign), period for which they were made available (short-term, long-term), and, to complement the analysis, including the maturity criterion (due, past due).

Debt coverage ratios allow in turn to check, whether the company is able to seamlessly cover the liabilities resulting from the available capital. In particular, the analysis is related to the ability of principal repayment and interest coverage.

The group of debt management ratios includes:

Indebtedness analysis:

• Equity ratio,
• Adjusted equity ratio,
• Debt ratio,
• Debt-to-equity ratio (D/E),
• Bank loans to equity ratio,
• Long-term debt to equity,
• Long-term bank loans to equity,
• Short-term debt to equity
• Ratio of financial leverage effect.

Debt coverage analysis:

• Cash flow coverage ratio,
• Times interest earned (TIE) / Interest coverage ratio
• Fixed assets to long-term debt ratio.