Leverage Ratios - Business Finance - ثاني ثانوي

3.9 Leverage Ratios Link to digital lesson Key Terms Debt/net worth ratio Debt ratio Leverage ratios measure the firm's use of debt financing. The two most commonly used ratios to measure financial leverage are (1) debt to equity, which is often referred to as the debt/net worth ratio, and (2) debt to total assets, which is commonly referred to as the debt ratio. These ratios compare the amount of debt to the firm's net worth (equity) or its overall assets. These ratios should be compared to other firms in the same industry. 3.9a Debt/Net Worth Ratio The debt/net worth ratio is: www.deni.edu.sa Debt/net worth rail The ratio of money owed to equity money owed divided by equity Dubtratio The botal amount of money ower weded by the total assets the proportion of assets financed by money owed a measure of fmanal leverage Debt Debt/net worth ratio Equity Daana's Delights has total debt of SAR B,330,000 (that is the sum of current liabilities and long-term debt). Therefore: Debt Equity SAR 8,330,000 = 6.29 SAR 1,324,000 The debt/net worth ratio indicates that there is SAR 6.29 of debt for every Riyal of owner equity. You Try It Noors furniture factory is currently carrying SAR 12,450,000 in debt. Its balance sheet shows an equity of SAR 3,500,000. Calculate Noor's debt/net worth ratio. How much debt does Noor have for each Riyal of owner equity? وزارة التعليم CHAPTER Analysis of Financial Statements 117)

N 2901-19 By Business Finance 3.9b Debt Ratio The debt ratio is: Debt Debt ratio Total assets In the case of Daana's Delights, the debt ratio is: Debt Total assets SAR 8,330,000 SAR 9,654,000 = 86.3% The debt ratio indicates that debt is financing 86.3% of the firm's assets. You Try It Noor's furniture factory has SAR 12,450,000 in debt, and its total assets are worth SAR 25,750,000. Calculate Noor's debt ratio: What percentage of Noor's assets are being funded by debt?