Leverage ratio

Leverage/Capital Structure Ratios:

v Long term creditors/lenders to verify the ability of the firm to pay interest and instalment of the principal on due dates and lump sum at the time of maturity.

v Long-term solvency of a firm can be measured by using leverage or capital structure ratios.

v Types of Leverage Ratios are as follows:

ü The First type of capital Structure rat

is as follows:

Debt-Equity Ratio,

Debt-Assets ratio.

Proprietary ratio.

ü The Second type of capital structure ratio’s are as follows:

o Interest coverage ratio.

o Dividend coverage ratio.

o Total fixed charges coverage ratio.

o Cash flow coverage ratio.

o Debt services coverage ratio.