By Richard Loth (Contact | Biography)
The third series of ratios in this tutorial are debt ratios. These ratios give users a general idea of the company's overall debt load as well as its mix of equity and debt. Debt ratios can be used to determine the overall level of financial risk a company and its shareholders face. In general, the greater the amount of debt held by a company the greater the financial risk of bankruptcy.
The next chapter of this Debt Ratios section (
Overview of Debt) will give readers a good idea of the different classifications of debt. While it is not mandatory in understanding the individual debt ratios, it will give some background information on the debt of a company. The ratios covered in this section include the
debt ratio, which is gives a general idea of a company's financial
leverage as does the
debt-to-equity ratio. The
capitalization ratio details the mix of debt and equity while the interest coverage ratio and the cash flow to debt ratio show how well a company can meet its obligations.
To find the data used in the examples in this section, please see the Securities and Exchange Commission's website to view the
2005 Annual Statement of Zimmer Holdings.
