debt

Examples of debt in the following topics:

• Total Debt to Total Assets

  • The debt ratio is expressed as Total debt / Total assets.
  • Debt ratios measure the firm's ability to repay long-term debt.
  • The debt/asset ratio shows the proportion of a company's assets which are financed through debt.
  • If the ratio is greater than 0.5, most of the company's assets are financed through debt.
  • A company with a high debt ratio (highly leveraged) could be in danger if creditors start to demand repayment of debt.

• Debt-to-Equity Ratio

  • The Debt-to-Equity Ratio is a financial ratio that compares the debt of a company to its equity and is closely related to leveraging.
  • The Debt-to-Equity Ratio is a financial ratio indicating the relative proportion of shareholder's equity and debt used to finance a company's assets, and is calculated as total debt / total equity.
  • Debt is typically a long-term liability that represents a company's obligation to pay both principal and interest to purchasers of that debt.
  • Calculating a company's debt to equity ratio is straight forward, and the debt and equity components can be found on a company's respective balance sheet.
  • For more advanced analysis, financial analysts can calculate a company's debt to equity ratio using market values if both the debt and equity are publicly traded.

• Corporate Bonds

  • The opposite of secured debt is unsecured debt, which is not linked to any specific piece of property.
  • Senior debt has seniority over subordinated debt in the issuer's capital structure.
  • Subordinated debt is repaid after other debts in the case of liquidation or bankruptcy.
  • Such debt is referred to as subordinate, because the debt providers (the lenders) have subordinate status relative to the normal debt.
  • Because subordinated debt is repaid only after other debts have been paid, they are riskier for lenders.

• Debt to Equity

  • The debt-to-equity ratio (D/E) indicates the relative proportion of shareholder's equity and debt used to finance a company's assets.
  • The formula of debt/equity ratio: D/E = Debt (liabilities) / equity.
  • A similar ratio is the ratio of debt-to-capital (D/C), where capital is the sum of debt and equity:D/C = total liabilities / total capital = debt / (debt + equity)
  • The debt-to-total assets (D/A) is defined asD/A = total liabilities / total assets = debt / (debt + equity + non-financial liabilities)
  • Debt to equity can also be reformulated in terms of assets or debt: D/E = D /(A – D) = (A – E) / E

• The Public Debt

  • Government debt, also known as public debt, or national debt, is the debt owed by a central government.
  • Government debt, also known as public debt, or national debt, is the debt owed by a central government.
  • As the government draws its income from much of the population, government debt is an indirect debt of the taxpayers.
  • Government debt can be categorized as internal debt (owed to lenders within the country) and external debt (owed to foreign lenders).
  • Sovereign debt usually refers to government debt that has been issued in a foreign currency.

• Debt Utilization Ratios

  • In this case, it has a debt ratio of 200%.
  • The debt ratio is a financial ratio that indicates the percentage of a company's assets that are provided via debt.
  • When used to calculate a company's financial leverage, the debt usually includes only the Long Term Debt (LTD).
  • D/E = Debt(liabilities)/Equity.
  • The debt service coverage ratio (DSCR), also known as debt coverage ratio (DCR), is the ratio of cash available for debt servicing to interest, principal, and lease payments.

• Striking Agreements to Avoid Bankruptcy

  • In general, creditors understand that bankruptcy is an option for debtors with excessive debt.
  • A debt restructuring is usually less expensive than bankruptcy.
  • Debt restructurings typically involve a reduction of debt and an extension of payment terms.
  • A debtor and creditor could also agree to a debt-for-equity swap, wherein a company's creditors generally agree to cancel some or all of the debt in exchange for equity in the company.
  • This simplifies the debtor's obligations and can result in faster debt repayment.

• Types of Private Financing Deals: Going Private and Leveraged Buyouts

  • LBOs use debt to secure an acquisition and the acquired assets service the debt.
  • As the debt usually has a lower cost of capital than the equity, the returns on the equity increase with the increasing debt.
  • In turn, this then led to insolvency or to debt-to-equity swaps, in which the equity owners lose control over the business and the debt providers assume the equity.
  • Senior debt: This debt is secured with the assets of the target company and has the lowest interest margin
  • Junior debt: This debt usually has no securities and bears a higher interest margin

• Deficit Spending, the Public Debt, and Policy Making

  • Government debt is the debt owed by a central government.
  • Government debt can be categorized as internal debt (owed to lenders within the country) and external debt (owed to foreign lenders).
  • Sovereign debt usually refers to government debt that has been issued in a foreign currency.
  • Otherwise the debt issuance can increase the level of (i) public debt, (ii) private sector net worth, (iii) debt service (interest payments) and (iv) interest rates.
  • US public debt consists of two components:

• Trade-Off Consideration

  • It states that there is an advantage to financing with debt—the tax benefits of debt, and there is a cost of financing with debt—the cost of financial distress including bankruptcy.
  • The marginal benefit of further increases in debt declines as debt increases, while the marginal cost increases.
  • Of course, using equity is initially more expensive than debt because it is ineligible for the same tax savings, but becomes more favorable in comparison to higher levels of debt because it does not carry the same financial risk.
  • Therefore, one would think that firms would use much more debt than they do in reality.
  • Describe the balancing act between debt and equity for a company as described by the "trade-off" theory