Abstract
Debt, as much as an opportunity as a threat, must be monitored.
First, financial leverage and its effects on income, both positive and negative, must be defined.
The core of the chapter focuses on debt ratios by comparing the relative size of debt to equity on the balance sheet, or by comparing the relative size of debt or its repayment to the cash flows generated by the company.
Two case studies illustrate the limits of the classic debt to equity approach based on book value.
Excessive financial leverage is then addressed via the instability theory of the late professor Hyman P. Minsky.
Finally, a sample of large players in three sectors is displayed to show that debt levels are sector related.
Key takeaways on debt ratios and their limitations conclude the chapter.
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References and Further Reading
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Coulon, Yannick. January 2017. Guide pratique de la finance d’entreprise. Gualino.
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Coulon, Y. (2020). Debt Ratios. In: Rational Investing with Ratios. Palgrave Pivot, Cham. https://doi.org/10.1007/978-3-030-34265-4_4
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DOI: https://doi.org/10.1007/978-3-030-34265-4_4
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