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Debt Ratio

This is a complete guide on how to calculate Debt Ratio with detailed interpretation, analysis, and example. You will learn how to use its formula to assess a company's debt repayment capacity.

Definition - What is Debt Ratio?​

The debt ratio, also referred to as the total debt to total asset ratio, allows you to calculate what portion of a company’s assets has been financed by debt.

The value of this ratio will provide you with information about the solvency of a particular business, and how capable it is of meeting its long-term financial obligations.

Generally speaking, the higher a firm’s total debt ratio value, the riskier its financial structure, since the majority of its assets will have been paid for with borrowed funds.

There’s always the risk that a company in this situation will eventually find itself unable to service its debt load.

The closer the ratio value is to 0%, the more stable and economically conservative a company is, with a greater portion of its assets having been purchased with investor equity.

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Cash Flow to Debt Ratio

This is a detailed guide on how to calculate Cash Flow to Debt (CF/D) ratio with thorough interpretation, example, and analysis. You will learn how to utilize its formula to evaluate a company's solvency.

Definition - What is Cash Flow to Debt Ratio?

When your investment analysis calls for measuring a company’s cash flow against its fixed debt payments, you can use a solvency ratio called the cash flow to debt ratio (CF/D), or cash flow to total liabilities ratio.

This ratio illustrates how much of the money flowing into a business is available to meet its debt commitments.​

In other words, if a company were to devote all of its cash flow from operations to repaying its debts, the time required to pay everything off could be estimated by looking at the value of its cash flow to total debt ratio.

This solvency ratio also offers some idea of whether or not a company is in the position to take on additional loans, should the need arise.

In general, the higher the ratio is, the more capable a business is of supporting and sustaining its ongoing short-term and long-term debt obligations.

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Return on Sales Ratio

This is an ultimate guide on how to calculate Return on Sales (ROS) ratio with in-depth interpretation, analysis, and example. You will learn how to use its formula to evaluate a company's profitability.

Definition - What is Return on Sales Ratio (ROS)?​

The return on sales ratio gives you an effective way to measure the efficiency with which a company converts its revenues into profits.

Essentially an assessment of a firm’s financial performance, the ROS ratio shows you how much of a company’s operational income is actually yielding a net gain.

This profitability ratio is particularly useful when evaluating a potential investment opportunity because it allows you to compare companies within the same industry, regardless of their size.

By comparing earnings to net sales, the ratio calculates the return on net sales as a percentage that can also be used to conveniently analyze the operational efficiency of the same business, over a range of reporting periods.

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Return on Common Equity Ratio

This is a complete guide on how to calculate Return on Common Stockholders Equity (ROCE) ratio with detailed analysis, interpretation, and example. You will learn how to utilize its formula to assess a firm's profitability.

Definition - What is Return on Common Stockholders Equity (ROCE)?

The return on common stockholders equity ratio, often known as return on equity or ROE, allows you to calculate the returns a company is able to generate from the equity that common shareholders have invested in it.​

This ratio is a great tool for keeping tabs on a business you already own shares in, or for evaluating one you’re considering as an investment.

The more capable a company is of yielding a profit from equity, the higher its return on common equity will be.

This ratio lets you know exactly how much in net income a firm is producing from each dollar of the equity invested by its common shareholders.

As an investor, the return on stockholders' equity figure is not only important for showing you how effectively a company is using your money to generate returns, it also demonstrates how efficient the firm’s management team is at using equity to support ongoing operations, and to fund growth and expansion.

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