Common use of Debt Ratios Clause in Contracts

Debt Ratios. Debt ratios measure the total amount and proportion of debt within the liabilities section of a firm's balance sheet. These figures are normally appropriate for comparing a company performance from one period to another. The debt position of a firm indicates the amount of other people's money being used in attempting to generate profits. The ability to repay long term debt is of most concern. The more debt a firm uses in relation to it's total assets, the greater is it's financial leverage. Ie: Fixed-cost debt up = financial leverage up = shareholder risk up. Borrowing money to finance your firm's debt will give you a higher return on investment, but also more risk as there are interest and capital repayment obligations to be met first. • Debt Ratio • Debt to Equity Ratio • Times Interest Earned • Fixed Payment Coverage Ratio