debt ratio

This topic has 6 replies, 2 voices, and was last updated 9 years ago by John Moffat.

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November 29, 2014 at 1:51 pm #214408
jess
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1)may i know how to calculate debt ratio?
i) debt/ debt+equity
ii) total debt/ total asset
2)why scrip issue will result in fall in market price per share?
November 29, 2014 at 4:23 pm #214451
John Moffat
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or the gearing ratio it is debt / debt + equity
or debt / total assets less current liabilities
Both are the same. Total assets – current liabilities = equity + long-term debt
A scrip issue it the same as a bonus issue. So shareholders receive extra shares free. Because they are not paying in any more, the total value of the shares must remain unchanged. This means that if they have more shares, then the MV per share must be lower.
November 29, 2014 at 4:47 pm #214463
jess
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when it mentions debt ratio, what is its formula actually?
November 29, 2014 at 5:17 pm #214475
jess
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in Bpp textbook, the formula for debt ratio is total debt : total asset. debt ratio formula is different from the gearing ratio formula.
why it is total debt and total asset instead of long term debt/ total asset-current liabilty?
November 29, 2014 at 5:17 pm #214477
John Moffat
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It is as I have written above!
November 29, 2014 at 5:20 pm #214479
jess
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why it is total debt and total asset instead of long term debt/ total asset-current liabilty?
November 30, 2014 at 7:50 am #214587
John Moffat
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Because it is long term debt as a ratio of total long-term finance.
Total long-term finance is the same as total assets minus current liabilities.
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