 Good Regulation: Leverage and LiquidityImad A. Moosa
Chapter 5 in Good Regulation, Bad Regulation, 2015, pp 78-97 from Palgrave Macmillan Abstract: Abstract The level of debt held by a firm is measured by the leverage ratio, which is calculated in various ways, such as the debt ratio and the debt-to-equity ratio. With respect to a firm’s capital structure, the debt ratio (D/A) is simply total debt (D) divided by total assets (A), where assets are financed by equity and debt (A=E+D). The inverse of the debt ratio as defined here (A/D) may be called the asset multiple (with respect to debt). For example, if a firm has $10 million in debt and $40 million in assets, the debt ratio is 0.25 or 25 per cent. In an inverse form the ratio is 4:1. The corresponding capital ratio (E/A), where capital is taken to be equity, is 0.75 or 75 per cent. In an inverse form, the ratio is 4:3—that is, for each dollar of equity the firm has 1.3 dollars in assets. The debt ratio and capital ratio are related, in the sense that when one is fixed the other is determined automatically. Keywords: Central Bank; Hedge Fund; Global Financial Crisis; Debt Ratio; Leverage Ratio (search for similar items in EconPapers) There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:pal:pmschp:978-1-137-44710-4_5 Ordering information: This item can be ordered from Access Statistics for this chapter More chapters in Palgrave Macmillan Studies in Banking and Financial Institutions from Palgrave Macmillan |
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