Debt is important for every company. This is an easy way to raise money. It is more important for those companies who are active in metal, construction, energy and power capital based business. However, sometimes it can be difficult for companies too.
Many businesses fall in such a way that they can not repay interest, original or both of their debts. News of such companies can be taken from the ongoing affairs in NCLT. Therefore, it is important for investors to know how conscious and committed the company is towards its debt.
Question: What is the financial leverage?
Answer: It shows the company's ability to raise money through means of regular income. It includes bank loan, commercial paper, commercial loan etc. Since it is included in the company's capital, the interest is paid on it. This capacity of the company is called leverage.
Question: Can more loan capacity be more profitable?
Answer: Actually not. How it will affect the profitability of the loan depends on the operation of the company. If the operating profit of the company is not suitable for repaying the interest, the debt can become a burden on the financial performance of the company.
Question: How can a company's liability be assessed?
Answer: Investors can use multiple ratios to assess the company's debt. It has the most popular debt-equity (D / E) ratio. It shows the relationship between the company's debt and equity. If it is above 1, it means that the company takes more debt for its financial needs.
Question: Who is the Degree of Financial Leverage (DFL)?
Answer: DFL is also a type of proportion. To assess, the company's earnings (EBIT) is taken before tax and interest. After this interest is separated from EBIT. We can call it EBT.
Many businesses fall in such a way that they can not repay interest, original or both of their debts. News of such companies can be taken from the ongoing affairs in NCLT. Therefore, it is important for investors to know how conscious and committed the company is towards its debt.
Question: What is the financial leverage?
Answer: It shows the company's ability to raise money through means of regular income. It includes bank loan, commercial paper, commercial loan etc. Since it is included in the company's capital, the interest is paid on it. This capacity of the company is called leverage.
Question: Can more loan capacity be more profitable?
Answer: Actually not. How it will affect the profitability of the loan depends on the operation of the company. If the operating profit of the company is not suitable for repaying the interest, the debt can become a burden on the financial performance of the company.
Question: How can a company's liability be assessed?
Answer: Investors can use multiple ratios to assess the company's debt. It has the most popular debt-equity (D / E) ratio. It shows the relationship between the company's debt and equity. If it is above 1, it means that the company takes more debt for its financial needs.
Question: Who is the Degree of Financial Leverage (DFL)?
Answer: DFL is also a type of proportion. To assess, the company's earnings (EBIT) is taken before tax and interest. After this interest is separated from EBIT. We can call it EBT.
Question: What is Interest Coverage and Debt / EBITDA Ratio?
Answer: In order to assess the interest coverage ratio, you have to divide the earnings (EBIT) before interest and tax before interest is paid. It shows the company's ability to repay the interest. If this ratio is close to 1 or so, then it means that in the near future, the company can struggle to repay interest.
The date / EBITDA ratio shows how quickly the company can repay the original loan by operating profit before the depreciation. The higher this ratio, the longer the loan repayment period. Because of this, the bank or the lender can come and pay new loans.
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