The capital structure leverage ratio is a measure of a company's financial risk and indicates the proportion of debt in its capital structure. It is calculated by dividing a company's total debt by its equity. A higher leverage ratio suggests that the company has a greater reliance on debt financing, which may increase financial risk but can also provide potential tax advantages and higher returns for equity holders.
Capital structure leverage ratio is found using this formula: Shareholders Equity + Long Term Liabilities + Short Term Liabilities divided by Shareholders Equity + Long Term Liabilities
SE+LTL+STL / SE+LTL
It's the ratio of leverage to core capital at a bank, wikipedia has an excellent explanation
Capital structure is basically how the firm chooses to finance its asset, or is the composition of its liabilities. A large way of measuring capital structure is a firms debt to equity ratio - the higher this ratio is, the more leveraged (the more indebted) the firm is.
disadvantages of a high leverage ratio in financial crisis
cost of capital,financial leverage,capital budgeting appraisal methods,ABC analysis,ratio analysis and cash flow statements.
Leverage
The basic earning power ratio (or BEP ratio) compares earnings apart from the influence of taxes or financial leverage, to the assets of the company. It is just a ratio of the earnings of the company and its assets and does not include the capital invested into the company or the tax and interest liabilities.Formula:BEPR = EBIT / Total Assets
Senior Debt / EBITDA
the return on equity divided by the return on assets
True
It tells about the capital structure of the company-how much it is debt financed and how much owner's equity is there.
Composite leverage equals financial leverage times operating leverage. Composite leverage is used to calculate the combined effect of operating and financial leverages. Leverage is the ratio of a company's debt to its equity.
Leverage ratio (debt to equity ratio) is calculated by dividing a company's total debt by the company's total shareholder equity. Therefore, any new debt will raise the leverage ratio (and the risk to the bank). Example: Company has $1,000,000 in Total Assets; $400,000 in debt; $100,000 in other liabilities; and $500,000 in Equity. The company's beginning leverage ratio is 0.8 ($400,000/$500,000). Now, assume the company borrowers $250,000 to purchase additional equipment. The business would then have $1,250,000 in Total Assets; $650,000 in debt; $100,000 in other liabilities; and $500,000 Equity. The company's new leverage ratio would be 1.3 ($650,000/$500,000).