Forum Archive Index - June 2000

["Wedde, John" <john.wedde@cit.ac.nz>]

Debt ratio is about the amount of total funds available to the business and
where these come from.
Hypothetically, if total funds are 1 million dollars and $700,000 is
shareholders funds, or equity,  then the balance [$300,000] must be from
outside sources [eg bank overdraft, creditors - long and short term].  The
debt ratio is 30%.  Although a very gross generalisation, it is often
claimed that this ratio should not really exceed 50%. The higher this ratio
[or %] the greater a company is said to be "geared". The higher the gearing
the more risk there is for people other than shareholders.  The bank, if
they are one of the larger creditors, is likely to be looking more closely
at the businesses activities than they otherwise might.


                -----Original Message-----
                From:   Krypt Or [mailto:kryptz@hotmail.com]
                Sent:   Wednesday, 31 May 2000 17:17
                To:     sharechat@sharechat.co.nz
                Subject:        [sharechat] FFS - debt ratio

                Could someone explain how to calculate debt ratio and it's
significance?

                Also I would imagine the acceptability of debt ratios would
vary from sector 
                to sector?...


                Thanks!
        
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