Leverage ratios

Similar financial terms

Unleveraged required return
The required return on an investment when the investment is financed entirely by equity (i.e. no debt).

Unleveraged beta
The beta of an unleveraged required return (i.e. no debt) on an investment when the investment is financed entirely by equity.

Operating leverage
Fixed operating costs, so-called because they accentuate variations in profits.

Net benefit to leverage factor
A linear approximation of a factor, T*, that enables one to operationalize the total impact of leverage on firm value in the capital market imperfections view of capital structure.

Leveraged required return
The required return on an investment when the investment is financed partially by debt.

Leveraged portfolio
A portfolio that includes risky assets purchased with funds borrowed.

Leveraged lease
A lease arrangement under which the lessor borrows a large proportion of the funds needed to purchase the asset and grants the lender a lien on the assets and a pledge of the lease payments to secure the borrowing.

Leveraged equity
Stock in a firm that relies on financial leverage. Holders of leveraged equity face the benefits and costs of using debt.

Leveraged buyout (LBO)
A transaction used for taking a public corporation private financed through the use of debt funds: bank loans and bonds. Because of the large amount of debt relative to equity in the new corporation, the bonds are typically rated below investment grade, properly referred to as high-yield bonds or junk bonds. Investors can participate in an LBO through either the purchase of the debt (i.e., purchase of the bonds or participation in the bank loan) or the purchase of equity through an LBO fund ...

Leveraged beta
The beta of a leveraged required return; that is, the beta as adjusted for the degree of leverage in the firm's capital structure.

Leverage rebalancing
Making transactions to adjust (rebalance) a firm's leverage ratio back to its target.

Leverage clientele
A group of shareholders who, because of their personal leverage, seek to invest in corporations that maintain a compatible degree of corporate leverage.

Leverage
The use of debt financing.

Short-term solvency ratios
Ratios used to judge the adequacy of liquid assets for meeting short-term obligations as they come due, including (a) the current ratio, (b) the acid-test ratio, (c) the inventory turnover ratio, and (d) the accounts receivable turnover ratio.

Reserve ratios
Specified percentages of deposits, established by the Federal Reserve Board, that banks must keep in a non-interest-bearing account at one of the twelve Federal Reserve Banks.

Rate of return ratios
Ratios that are designed to measure the profitability of the firm in relation to various measures of the funds invested in the firm.

Profitability ratios
Ratios that focus on the profitability of the firm. Profit margins measure performance with relation to sales. Rate of return ratios measure performance relative to some measure of size of the investment.

Market value ratios
Ratios that relate the market price of the firm's common stock to selected financial statement items.

Liquidity ratios
Ratios that measure a firm's ability to meet its short-term financial obligations on time.

Capitalization ratios
Also called financial leverage ratios, these ratios compare debt to total capitalization and thus reflect the extent to which a corporation is trading on its equity. Capitalization ratios can be interpreted only in the context of the stability of industry and company earnings and cash flow.

Common stock ratios
Ratios that are designed to measure the relative claims of stockholders to earnings (cash flow per share), and equity (book value per share) of a firm.

Coverage ratios
Ratios used to test the adequacy of cash flows generated through earnings for purposes of meeting debt and lease obligations, including the interest coverage ratio and the fixed charge coverage ratio.

Customary payout ratios
A range of payout ratios that is typical based on an analysis of comparable firms.