What is the leverage ratio quizlet?
Leverage ratio. = total debt / total equity. measure of use of debt vs equity to finance activities. Generally recommended less than 1. Debt to assets.
What do leverage ratios indicate?
A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt (loans) or assesses the ability of a company to meet its financial obligations.
What do financial leverage ratios indicate quizlet?
Measure the extent to which borrow funds have been used to finance the company’s assets.
Which of the following is a leverage ratio?
Answer: Debt equity ratio is a leverage ratio. The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion of shareholders’ equity and debt used to finance a company’s assets. Closely related to leveraging, the ratio is also known as risk, gearing or leverage.
What does financial leverage measures quizlet?
Financial Leverage Ratios. -used to assess how much financial risk the company has taken on.
When the Fed decreases the discount rate banks will?
A decrease in the discount rate makes it cheaper for commercial banks to borrow money, which results in an increase in available credit and lending activity throughout the economy.
What financial leverage tells us?
The degree of financial leverage (DFL) is a leverage ratio that measures the sensitivity of a company’s earnings per share to fluctuations in its operating income, as a result of changes in its capital structure. This ratio indicates that the higher the degree of financial leverage, the more volatile earnings will be.
What do market value ratios tell managers about the financial market’s view of a firm?
Market value ratios give management an indication of what investors think of the company’s? and future prospects. growth have high M/B ratios. Low, High. M/B ratios typically exceed? , which means that investors are willing to pay more for stocks than their accounting book values.
What do you mean by financially leveraged?
Financial leverage is the use of borrowed money (debt) to finance the purchase of assets. In the case of asset-backed lending, the financial provider uses the assets as collateral until the borrower repays the loan. In the case of a cash flow loan, the general creditworthiness of the company is used to back the loan.
What is a financially leveraged firm?
Financial leverage arises when a firm decides to finance the majority of its assets by taking on debt. Firms do this when they are unable to raise enough capital by issuing shares in the market to meet their business needs. If a firm needs capital, it will seek loans, lines of credit, and other financing options.
Why do banks borrow from other banks?
Banks can borrow from the Fed to meet reserve requirements. The rate charged to banks is the discount rate, which is usually higher than the rate that banks charge each other. Banks can borrow from each other to meet reserve requirements, which is charged at the federal funds rate.
What does the total assets turnover ratio measure?
The total assets turnover ratio measures how effectively the firm uses its total assets and whether the firm generates enough sales given its total assets. Its equation is: Debt management ratios measure the extent to which a firm uses financial leverage and the degree of safety afforded to ________.
What does the market value ratio tell you?
Market value ratios give management an indication of what investors think of the company’s ______ and future prospects. The market value ratios include: (1) Price/Earnings ratio and (2) Market/Book ratio. The Price/Earnings (P/E) ratio shows how much investors are willing to pay per dollar of current _____.
Which is an important ratio in asset management?
Asset management ratios are important – firms need to manage assets efficiently because capital obtained to acquire those assets is expensive. These ratios include the: (1) Inventory turnover ratio, (2) Days sales outstanding, (3) Fixed assets turnover, and (4) Total assets turnover.