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Write on the most important 5 ratios that measure the long –term debt –paying ability, showing...

Write on the most important 5 ratios that measure the long –term debt –paying ability, showing the name of the ratio, its numerator and denominator. *

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Answer #1

Ans- Five long term debt paying ability ratios are

1.) Debt equity ratio = Total debt / Equity

Debt = Long term borrowings

Equity = Share capital + Free reserves

2.) Debt to capital employed ratio

Long term debt / Capital Employed

Capital employed = Long term debt + shareholders funds

3.) Proprietary ratio

Shareholders funds / Total assets

4.) Total asset to debt ratio

Total assets / Long term debts

5.) Interest coverage ratio / Debt service ratio

Net profit before interest and tax ( EBIT)/ Interest on long term debt

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