A leverage ratio is any kind of financial ratio that indicates the level of debt incurred by a business entity against several other accounts in its balance sheet, income statement, or cash flow statement. These ratios provide an indication of how the company’s assets and business operations are financed (using debt or equity).
List of common leverage ratios
There are several different leverage ratios that may be considered by market analysts, investors, or lenders. Some accounts that are considered to have significant comparability to debt are total assets, total equity, operating expenses, and incomes.
Below are 5 of the most commonly used leverage ratios:
- Debt-to-Assets Ratio = Total Debt / Total Assets
- Debt-to-Equity Ratio = Total Debt / Total Equity
- Debt-to-Capital Ratio = Today Debt / (Total Debt + Total Equity)
- Debt-to-EBITDA Ratio = Total Debt / Earnings Before Interest Taxes Depreciation & Amortization (EBITDA)
- Asset-to-Equity Ratio = Total Assets / Total Equity