Definition of ‘Leverage Ratios’
Leverage ratios are used to show the capital structure of the business and in particular the level of debt in relation to the owners equity.
A business with a high level of debt is considered to be more risky but will give greater returns to the owners provided cash and profit are managed correctly.
Template Leverage Ratios Definition
The most commonly used leverage ratios listed below.
- Gearing ratio
- Debt equity ratio
- Equity Multiplier
- Interest coverage ratio
In the financial projections template the level of leverage is indicated by the equity multiplier which is defined as the ratio of assets to equity, and is more fully discussed in our tutorial on financial projections ratios.
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