Introduction Optional Reading Workshop Content - Bivio

RAW - LeverageLong Term DebtLong Term Debt (LTD) to Capital = -----------------------Long Term Debt + EquityThe Long Term Debt to Capital Ratio uses the same two quantities (LongTerm Debt and Equity) as the Long Term Debt to Equity Ratio. Eventhough the values of the ratios will be different, they convey the sametype of information.If, as in the preceding example, the Long Term Debt to Equity Ratio hasa value of 1.0 (Long Term Debt = Equity) then the Long Term Debt toCapital Ratio will have a value of 0.5.LTD 925LTD to Capital = ------------ = ------- = 0.5LTD + Equity 925+925Users of Value Line may find that it is convenient to use the Long TermDebt to Capital Ratio. This is because Value Line usually shows theratio of Long Term Debt to Capital in the CAPITAL STRUCTURE box.PEER REVIEWMarket Guide does not report a value for this ratio.____________________________________________________________________TOTAL DEBT TO EQUITY RATIOThe Total Debt to Total Equity Ratio is defined as:Total DebtTotal Debt to Equity Ratio = ------------EquityTotal Debt is the sum of Long Term Debt plus Debt Due (a component ofCurrent Liabilities).There are situations where a company may roll-over its Debt Due intonew Long Term Debt. There are also cases where a company continuallykeeps borrowing on a short term basis while having little or no LongTerm Debt. In these cases Total Debt may be a better indicator ofLeverage than Long Term Debt.TOTAL DEBT TO EQUITY RATIO EXAMPLE 1The same Balance Sheet that was used for the long Term Debtto Equity Ratio and the Long term Debt to Capital Ratio examples isshown below with the Current Liability entry separated into twocomponents.Current Assets 300Plant, Property and Equipment 1700Other Assets 0TOTAL ASSETS 2000Current LiabilitiesAccounts Payable 100Debt Due 50Long Term Debt 925Other Long Term Liabilities 0Equity 925Page 3