Equity to Debt = Equity / Total Liabilities
- It shows whether the total liabilities of the company exceed its Equity.
- When the ratio is < 1……… Total liabilities are not covered by equity When the ratio is > 1……… The company’s liabilities are covered by its Equity
- Lenders are particularly interested in this ratio as it is an indication of the degree of uncertainty in the return of their capital.
Business actions to improve the Index
Reduction of Total Liabilities, by repaying liabilities
- reducing cash,
- Liquidation of Fixed Assets and repayment of Liabilities
- Liquidation of Inventories and repayment of Liabilities
- Accelerating collections from Receivables and repayment of Liabilities
- Future reduction of expenses and purchases.
Increase in Equity, either through future profitability, or by Increase in Share Capital.
