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About 'calculate debt to total assets ratio'|Replies from AK71: Calculating gearing for companies and REITs.







About 'calculate debt to total assets ratio'|Replies from AK71: Calculating gearing for companies and REITs.








Different               parties               conducting               financial               analysis               have               different               concerns               and               use               different               methods               for               determining               the               health               and               current               position               of               a               company.

Short-term               creditors               are               concerned               with               the               company's               ability               to               repay               its               short-term               obligation               and               its               ability               to               quickly               turn               its               inventories               into               liquid               cash.

One               method               for               determining               a               company's               ability               to               pay               its               short-term               debt,               are               liquidity               ratios.

Liquidity               ratios               are               designed               to               measure               whether               or               not               a               company               has               the               ability               to               meet               its               short-term               liabilities.

There               are               two               main               types               of               ratios               used;               these               include               the               current               ratio               and               the               quick               ratio.

The               current               ratio               is               calculated               by               dividing               current               assets               by               current               liabilities.

In               calculating               the               quick               ratio,               inventory               is               excluded               from               current               assets               and               the               remainder               is               divided               by               current               liabilities               (Logue,               Modern               Finance).

The               inventory               is               excluded               because               many               analysts               feel               that               inventories               are               generally               less               liquid               than               other               items               in               current               assets.

Therefore,               the               quick               ratio               is               more               likely               to               present               a               better               snap               shot               of               the               company's               ability               to               pay               its               short-term               obligations.

Measures               of               long-term               solvency               are               used               in               assessing               the               firm's               ability               to               meet               interest               and               principal               payments               on               long-term               debt               and               similar               obligations               as               they               become               due.

If               the               payments               cannot               be               made               on               time,               the               firm               becomes               insolvent               and               may               have               to               be               reorganized               or               liquidated.

Perhaps               the               best               indicator               of               long-term               solvency               of               a               firm's               ability               to               generate               profits               over               a               period               of               years.

If               a               firm               is               profitable,               it               will               either               generate               sufficient               funds               from               operations               or               be               able               to               obtain               needed               funds               from               creditors               and               owners.

The               measures               of               profitability               are               debt               ratios               and               the               numbers               of               times               that               interest               charges               are               earned.

There               are               several               variations               of               the               debt               ratio,               but               one               most               commonly               used               form               is               the               long-term               debt               ratio.

It               reports               the               portion               of               a               firm's               long-term               capital               that               is               furnished               by               debt               holders.

To               calculate               this               ratio,               total               noncurrent               liabilities               are               divided               by               the               sum               of               total               noncurrent               liabilities,               minority               interest               in               consolidated               subsidiaries               and               total               shareholders'               equity.

Another               common               form               of               the               debt               ratio               is               the               debt-equity               ratio.

To               calculate               the               debt-equity               ratio,               total               liabilities               (current               and               noncurrent)               are               divided               by               total               equities               (liabilities               +               shareholders'               equity=total               assets).

(Logue,               Modern               Finance)
               Operating               efficiency               analysis               is               used               to               determine               what               factors               give               one               company               a               marketplace               advantage               or               disadvantage               in               terms               of               sustaining               profitability               through               periods               of               economic               stress               or               serious               competitive               pressures.

Statically,               a               company's               relative               efficiency               can               be               measured               in               many               ways:               gross               margins;               operating               margins;               return               on               capital;               labor               costs               in               relation               to               sales;               finished               goods/sales;               and               ratio               tools.

Cost               advantage               can               be               traced               to               the               relative               degree               of               integration               of               manufacturing               operations.

Companies               that               meet               Occupational               Safety               and               Health               Administration               (OSHA)               Standards               should               have               good               capacity               to               expand               or               modernize               facilities               to               improve               operating               or               production               abilities.

Price               leadership               is               also               taken               into               account,               while               price               leadership               is               generally               a               function               of               market               share,               price               policy               in               itself               is               far               more               important               to               operating               margins               than               it               s               to               the               total               dollar               sales               position.

(Amlings,               Investment)
               Overall,               before               investing               into               a               firm;               investors,               creditors               and               all               key               stakeholders               should               examine               the               financial               and               operating               performance               of               the               firm.

There               are               many               different               ways               for               examining               the               firm's               activities               and               measuring               its               financial               and               operational               performance.

A               variety               of               techniques               are               used               to               forecast               the               cyclical               short               and               long-term               trends               of               business               conditions,               but               overall               none               are               perfect.

Methods               for               measuring               alone               are               not               reliable;               they               should               be               used               in               conjunction               with               a               review               of               the               firms               financial               statements               to               present               a               better               picture               of               the               overall               health               and               condition               of               the               company.
               References
               Logue,               D.E               Handbook               of               Modern               Finance               Financial               Statements               retrieved               May               19,               2009               2009
               Amling,               F.

Investments:               An               Introduction               to               Analysis               and               Management,               Englewood               Cliffs,               N.J               Prentice               Hall               Retrieved               May               19,               2009






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