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Debt Ratios

  • Yannick Coulon
Chapter
  • 104 Downloads

Abstract

Debt, as much as an opportunity as a threat, must be monitored.

First, financial leverage and its effects on income, both positive and negative, must be defined.

The core of the chapter focuses on debt ratios by comparing the relative size of debt to equity on the balance sheet, or by comparing the relative size of debt or its repayment to the cash flows generated by the company.

Two case studies illustrate the limits of the classic debt to equity approach based on book value.

Excessive financial leverage is then addressed via the instability theory of the late professor Hyman P. Minsky.

Finally, a sample of large players in three sectors is displayed to show that debt levels are sector related.

Key takeaways on debt ratios and their limitations conclude the chapter.

Keywords

Financial leverage Debt to equity ratios Debt coverage ratios Financial instability hypothesis of professor Hyman P. Minsky Creditworthiness 

References and Further Reading

  1. Anthony, Robert N., and James S. Reece. 1989. Accounting: Text and Cases. Irwin.Google Scholar
  2. Coulon, Yannick. January 2017. Guide pratique de la finance d’entreprise. Gualino.Google Scholar
  3. ———. September 2018. L’essentiel des ratios financiers. Maxima Laurent du Mesnil.Google Scholar
  4. Jones, Bill, Terry Jones, Theo Kocken, and Ben Timlett. March 2016. (USA). Boom, Bust, Boom. TV Documentary.Google Scholar
  5. Minsky, Hyman P. 2008. Stabilizing an Unstable Economy. McGraw-Hill.Google Scholar
  6. Quiry, Pascal, and Yann Le Fur. 2019. Finance d’entreprise 2020 de Pierre Vernimmen. Dalloz.Google Scholar
  7. Stowe, John D., Thomas R. Robinson, Jerald E. Pinto, and Dennis W. McLeavey. August 2002. Analysis of Equity Investments: Valuation. AIMR and CFA Institute.Google Scholar
  8. Thibierge, Christophe. November 2013. Comprendre toute la finance, 2ème édition. Vuibert.Google Scholar
  9. Walsh, Ciaran. 2008. Key Management Ratios, 4th ed. Financial Times Series. FT Prentice Hall. Pearson Education Limited.Google Scholar

Debt and Industries: Balance Sheets Used

  1. Carrefour, 2018 Full Year Results, February 28, 2019.Google Scholar
  2. Duke Energy 2018 Annual Report, Transforming the Future, Feb 14, 2019.Google Scholar
  3. Fiat Chrysler Automobiles (FCA), Semi-Annual Report (Ended June 30, 2019), July 31, 2019.Google Scholar
  4. General Motors, Second Quarter Earnings 2019, August 1, 2019.Google Scholar
  5. Groupe EDF, 2019 Half Year Results, July 26, 2019.Google Scholar
  6. National Grid, Annual Report and Accounts 2018/19 (Year Ended March 31, 2019), May 16, 2019.Google Scholar
  7. Target, Annual Report 2018 (Year Ended February 3, 2019), March 2019.Google Scholar
  8. Volkswagen, Half-Yearly Financial Report (Ended June 30, 2019), July 25, 2019.Google Scholar
  9. Walmart, 2019 Annual Report (Year Ended January 31, 2019), Defining the Future of Retail, April 23, 2019.Google Scholar

Copyright information

© The Author(s) 2020

Authors and Affiliations

  • Yannick Coulon
    • 1
  1. 1.Brest Business SchoolBrittanyFrance

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