How Do I Calculate Net Debt?

The debt ratio is the ratio of a company's total debt to all funding sources, and is used to indicate the proportion of a company's debt to total funds. The debt ratio refers to the relationship between debt and assets and net assets. It reflects the ability of an enterprise to repay the principal of debt and the interest on debt.

Debt ratio

Different analysis angles, right

1. Creditors' requirements for asset-liability ratio

From the standpoint of creditors, they are most concerned about the degree of security of various financing methods and whether they can recover the principal and interest on schedule. If the capital provided by shareholders is only a small proportion compared to the total assets of the enterprise, the risk of the enterprise is mainly borne by creditors, which is not good for creditors. Therefore, creditors hope that the lower the asset-liability ratio, the better, and that the debt repayment of the enterprise is guaranteed, and the funds raised to the enterprise will not have much risk.

2. Investors' requirements for the asset-liability ratio

From the investor's standpoint, investors are concerned about whether the profit rate of all capital exceeds the interest rate of borrowed capital, that is, the interest rate of borrowed funds. If the profit rate of all capital exceeds the interest rate, the profit obtained by the investor will increase. If, on the contrary, the profit rate of the capital is lower than the interest rate of the borrowed funds, the profit obtained by the investor will decrease, which is not good for the investor . Because the excess interest on borrowed capital must be made up by the investor's share of profits, the investor hopes that the higher the asset-liability ratio, the better, otherwise the total asset profit rate is higher than the borrowed capital interest, otherwise the contrary.

3. Operators' requirements for asset-liability ratio

From the standpoint of the operator, if the amount of borrowing is large and exceeds the creditor's psychological tolerance, the enterprise will not be able to raise funds. The larger the amount of borrowed funds (not blind borrowing, of course), the more vigorous the company appears. Therefore, the operator hopes that the asset-liability ratio will be slightly higher. Through debt management, the scale of production will be expanded, the market will be expanded, the vitality of the enterprise will be enhanced, and higher profits will be obtained.

Long-term leases, guarantee obligations, contingent items, etc.