1. What is the Leverage Ratio?

The Leverage Ratio measures a company's financial leverage by comparing its total debt to total equity. It indicates how much debt a company is using to finance its assets relative to the amount of equity.

2. How Does the Calculator Work?

The calculator uses the Leverage Ratio formula:

Where:

• \( \text{Total Debt} \) — Sum of all short-term and long-term debt obligations
• \( \text{Total Equity} \) — Total shareholders' equity including retained earnings

Explanation: The ratio shows the proportion of debt financing relative to equity financing in a company's capital structure.

3. Importance of Leverage Ratio Calculation

Details: The Leverage Ratio is crucial for assessing financial risk, determining creditworthiness, evaluating investment decisions, and understanding a company's financial health and stability.

4. Using the Calculator

Tips: Enter total debt and total equity in the same currency units. Both values must be positive, with total equity greater than zero for valid calculation.

5. Frequently Asked Questions (FAQ)

Q1: What is a good Leverage Ratio?
A: Generally, a ratio below 2.0 is considered acceptable, but this varies by industry. Lower ratios indicate less financial risk.

Q2: How does Leverage Ratio differ from Debt-to-Equity Ratio?
A: They are essentially the same calculation, both measuring the relationship between debt and equity financing.

Q3: What does a high Leverage Ratio indicate?
A: A high ratio suggests the company relies heavily on debt financing, which may indicate higher financial risk and interest obligations.

Q4: Can Leverage Ratio be negative?
A: No, the ratio should be positive. Negative values would indicate either negative debt or negative equity, which are unusual financial situations.

Q5: How often should Leverage Ratio be calculated?
A: It should be calculated regularly, typically quarterly or annually, to monitor changes in financial structure and risk exposure.