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Leverage Ratio/ Capital Structure Ratios
June 07 , 2012

The short term creditors like bankers and suppliers of raw material are more concerned with the firm's current debt-paying ability. On the other hand, long term creditors like debenture holders, financial institution etc. are more concerned with firm's long term financial strength. To evaluate the long term financial position of the firm financial leverage or capital structure ratios are calculated. It includes debt ratio, debt to equity ratio, and debt service coverage ratio.

Debt Ratio = Total Liabilities / Total Assets

Debt to equity Ratio =  Total Liabilities / Shareholders' Equity

Debt Service Coverage Ratio = Net operating Income /  Total Debt Service

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