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Debt to equity ratio tells you the financial health of the business, calculated by: total liabilities divided by total assets, if the result is atleast is0.6 or above then you can say it is ideal.
Debt ratio to vary depending on the company's shareholders' equity type. For example, figure 2 is a good proportion of capital-intensive industries, such as automakers, while this percentage is low in software companies, where up to 0.5.
Financial soundness ratios
Debt ratio to clarify property rights in the company's debt-to-equity, which the company uses to finance its assets ratio. The ratio of debt to shareholders' equity is calculated by dividing the total debt to total equity:
Debt / equity ratio = Total debt / Equity
Debt ratio indicates a high equity ratio that the company is carrying a relatively heavy debt burden.
Now–a–days detailed estimates in terms of quantities and amounts are drawn up before the start of each activity. This is done to ensure that a practicable course of action can be chalked out and the actual performance corresponds with the estimated or budgeted performance. Financial Ratios have predictory value and they are very helpful in forecasting and planning the business activities for a future. It helps in budgeting. Financial Ratios are able to provide a great deal of assistance, budget is only an estimate of future activity based on past experience, in the making of which the relationship between different spheres of activities are invaluable. It is usually possible to estimate budgeted figures using financial ratios. Ratios also can be made use of for measuring actual performance with budgeted estimates. They indicate directions in which adjustments should be made either in the budget or in performance to bring them closer to each other.
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