Placeholder Image

字幕列表 影片播放

  • Hi, Else here.

  • And today we're going to talk about the debt to equity ratio.

  • This ratio is calculated as a business's total liabilities

  • divided by the total equity.

  • It is used to measure the relationship between what

  • has been contributed by the creditors in the form of debt

  • and what has been contributed by the shareholders

  • in the form of equity.

  • It measures of businesses financial leverage--

  • the extent to which debt is used either aggressively or not

  • to grow the business.

  • The debt to equity ratio gauges the degree

  • to which a business is taking on debt in order

  • to increase its value.

  • The increase in debt is used to increase

  • the projects the business is involved in

  • and therefore increased future revenues.

  • Increased debt is associated with increased risk.

  • What does the word risk actually mean?

  • Risk is connected to the fact that future events,

  • transactions, circumstances, and results just cannot be

  • predicted.

  • Risk means unpredictability.

  • In the case of debt levels, additional debt

  • is connected to financing costs, but also

  • to adding value through growth.

  • If the financing costs are greater

  • than the benefits received from increased growth,

  • overall shareholders' equity will

  • decrease because lower profits means lower retained earnings,

  • which means lower equity.

  • High debt to equity ratios and an increase in the ratio

  • is, or may be, seen as a negative for these reasons.

  • Having said that, not all high debt to equity ratios

  • are bad, which is why I said may be.

  • Everyone who reviews debt to equity ratios

  • needs to be careful and consider a few factors.

  • The first would be the industry you're looking at.

  • Debt to equity ratios differ between different industries.

  • For instance, industries that require

  • a high level of investment in property, plant, and equipment,

  • like mining or car manufacturing,

  • may have much higher debt to equity levels than, say,

  • a service company providing financial advice

  • to their clients.

  • Debt to equity ratios should be compared between businesses

  • within the same industry.

  • The second consideration would be what liabilities are

  • included in total liabilities.

  • This may differ considerably between different businesses.

  • Some use only debt that requires a cash outflow--

  • meaning they omit unearned revenue.

  • Some include only long term debt,

  • which means they exclude all short-term liabilities--

  • even that can be complicated since if long-term debt is

  • close to maturity, the business may exclude it since it can

  • be categorized as short term.

  • All of these factors complicate the comparison of the debt

  • to equity ratio.

  • It is therefore important to do the following--

  • determine how the ratio is calculated in the businesses

  • you are reviewing, compare ratios

  • only for businesses within the same industry.

  • And finally, compare the ratio to benchmarks

  • that are available for the industry the business is in.

  • That will provide additional information for your analysis.

  • Let's do an example to better demonstrate these concepts.

  • For these examples will assume that total liabilities

  • is the total of all current and non-current liabilities.

  • Here we have two businesses--

  • Greene Manufacturing and Bleaue Manufacturing.

  • Greene Manufacturing has total liabilities of 50,000

  • and total equity of 100,000.

  • Using these figures, we can calculate the debt

  • to equity ratio, which would be 0.5 times,

  • or 50%, which is 50,000 divided by 100,000.

  • What does this mean?

  • It means that for every $0.50 of debt,

  • the business has bucket of equity,

  • the business is equity financed, meaning that equity finances

  • most of the purchase of the assets.

  • Now lets look at Bleaue Manufacturing.

  • They have the same total equity of 100,000,

  • but they have liabilities of 200,000.

  • Their debt to equity ratio is two times,

  • or 200%, calculated as 200,000 divided by 100,000.

  • This means that for every $2 of debt, Bleaue has only $1

  • of equity.

  • They are mainly debt financed, meaning

  • that the debt has financed or purchased a larger

  • portion of their assets.

  • Since both businesses are in the same industry,

  • we can compare them and decide which one we want to invest in

  • or which we want to loan money to.

  • Let's look at it another way Greene's debt to equity ratio

  • is 0.5 times, or 50%.

  • We know their assets are equal to their liabilities

  • plus their equity, so assets must be $150,000.

  • If we take the liabilities and divide them

  • by the total assets, and then take the equity

  • and divide that by the total assets,

  • we learn that $1 of assets is funded 33.3% through debt

  • and 66.7% through equity.

  • Again, we see that this business is equity financed.

  • If we do the same for Bleaue Manufacturing,

  • we can see that two times, or the 200% debt to equity ratio,

  • can be analyzed in the same way.

  • Assets are 300,000, equal to $200,000 liabilities,

  • plus 100,000 equity.

  • If we divide total liabilities by the total assets,

  • and then we divide the total equity by the total assets,

  • we discover that every $1 of assets

  • is funded 66.7% by the debt and only 33.3 by equity,

  • showing that this company is heavily debt financed.

  • We can then compare these two companies

  • to see which is debt financed, obviously Bleaue, and which

  • is equity financed, Greene.

  • What does this mean?

  • It means that Bleaue manufacturing has higher risk.

  • A higher debt to equity ratio is considered riskier,

  • because it shows that the shareholders have not

  • funded a large portion of the business' operations.

  • This might be seen as a lack of performance

  • on the shareholders part.

  • It is riskier because debt requires

  • interest payments and expense, which reduces profit,

  • reduces retained earnings, and reduces equity in the end.

  • Finally, the principal must be repaid

  • at some point in the future--

  • a future where we don't know what

  • the economy or the business's financial position might be.

  • Both the interest and principal repayments

  • require an outflow of cash from operations,

  • reducing the cash available to either grow the business

  • or pay dividends to the shareholders.

  • In addition, if there is a downturn in the economy,

  • the cash flow from operations might be reduced

  • and this can seriously impact the ability of the business

  • to service and repay their debt.

  • You can see why the debt to equity ratio

  • measures of businesses leverage.

  • They are leveraging their present

  • in the hopes of an uncertain future.

  • Companies with high debt to equity ratios

  • may not be able to attract additional capital

  • from either creditors or potential investors.

  • Is a low debt to equity ratio better?

  • Certainly low debt to equity ratios

  • are preferred by the investors and lenders,

  • because they are better protected

  • in an economic downturn.

  • This is due to lower, ongoing interest

  • costs and lower requirements for principal repayments.

  • However, a low debt to equity ratio

  • may not be a good thing either.

  • Why?

  • Because it may indicate that the business is not

  • taking advantage of the growth and therefore

  • the increased future profit that taking on debt may bring.

  • Remember, taking on debt is used to increase the projects

  • the businesses involved in and therefore,

  • increase future revenues.

  • Just because there are negatives connected with the high debt

  • to equity ratio does not mean that a high debt

  • to equity ratio is bad.

  • As we noted before, we can't assess a debt to equity ratio

  • without careful consideration of a number of factors.

  • Remember to complete an appropriate analysis

  • and make a reasoned and well-supported conclusion.

  • Thank you for watching my video on the debt to equity ratio.

  • I hope you will join me again for future videos

  • about the ratios.

Hi, Else here.

字幕與單字

影片操作 你可以在這邊進行「影片」的調整,以及「字幕」的顯示

B1 中級 美國腔

比率----債務與權益比率 (Ratios - Debt to Equity)

  • 7 0
    陳虹如 發佈於 2021 年 01 月 14 日
影片單字