Leverage Ratio Calculator

Leverage Ratio

Leverage Ratio Calculator will provide an overview of the company`s earnings, equity, and assets in relation to its debt. These ratios are used by investors, BOD, creditors, and other stakeholders of the company to measure the financial strength of the company. These are the financial indices that help in analyzing the capital structure, financial obligation, and its ability to clear these obligations. The leverage ratio calculator will make it easy for the companies to calculate the same.

The formula for Calculating Leverage Ratios

The formula for calculating different leverage ratios are:

Debt to EBITDA

Total Debt/EBITDA (earning before interest, tax, depreciation and amortization)

Debt to Capital

Total Debt / (Total Debt + Total Equity)

Debt to Equity

Total Debt / Total Equity

Debt to Asset

Total Debt / Total Asset

About the Calculator / Features

This calculator effortlessly calculates the leverage ratios for any company. The user simply has to provide the following inputs.

  • Total Debt (long term and short term)
  • EBITDA (earning before interest, tax and depreciation and amortization)
  • Total Equity
  • Total Assets

Leverage Ratio Calculator

How to Calculate using Leverage Ratio Calculator

For using the calculator, user simply have to insert the following figures in calculator:

Total Debt

The amount of total debt can easily be obtained from the Balance Sheet of the company.

EBITDA

EBITDA can be calculated from the values available in the Profit & Loss Statements of the company.

Total Equity

Value of total equity is simply available in the Balance sheet of the Company.

Total Assets

Value of total asset can also be obtained from the Balance Sheet of company.

Example of Leverage Ratio

Lets understand this concept of leverage ratios with the help of an example. Company XYZ ltd. has capital of $2,000,000 comprised of 40% debt and 60% equity. The EBIT of the company are $200,000. The amount of depreciation and amortization in the financial statements is $30,000. The assets of the company totaled to $1,500,000.

Total Equity$1,200,0002,000,000*60%
Total Debt$800,0002,000,000*40%
EBITDA$230,000200,000+30,000
Total Assets$1,500,000– 
Total Capital$2,000,000

Debt to EBITDA = $800,000/$230,000 = 3.48

and, Debt to Capital = $800,000/$2,000,000 = 0.4

Debt to Equity = $800,000/$1,200,000 = 0.67

and, Debt to Assets = $800,000/$1,500,000 = 0.53

Interpretation of Leverage Ratio

Leverage Ratios tells about the financial health of the company and its capabilities to meet its financial liability and obligation.

Debt to EBITDA (earnings before interest, tax and depreciation, and amortization) suggest how much a company is earning before it pays interest. And how many times that earnings can cover its debt obligations. In fact, the higher ratio means that the debt is higher than earnings and similarly lower ratio implies that debt is lower than earnings, which is good.

Debt to Capital ratio shows the proportion of debt in capital structure. Higher the ratio, more the risk.

Debt to Equity defines the proportion of debt and equity in the capital structure.

Debt to Assets shows how much portion of the assets is sourced from the debt. In other words how much of the debt is used to create physical and productive assets.

Cautions

Leverage ratios measure the solvency of the company and how they utilize the available funds. The company should try to keep its Debt to EBITDA, Debt to Capital, Debt to Equity lower, rather at a reasonable level so that meeting obligations in time should not pose any problem.



Sanjay Borad

Sanjay Bulaki Borad

Sanjay Borad is the founder & CEO of eFinanceManagement. He is passionate about keeping and making things simple and easy. Running this blog since 2009 and trying to explain "Financial Management Concepts in Layman's Terms".

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