Question

Give an example of a “debt ratio” for a typical local government. Explain why the debt might be incurred and the implications if the debt ratio is high or low.

Answer 1

Debt ratio= total debt / total asset

The debt ratio of National Power Grid Corporation of India Ltd is 2.29,

Debt can be incurred by financing though equity shares,debentures and loans and advances. if working capital management is also missed the debt also incurred there too.

A high debt ratio shows that company are facing the dark stage by more debt ,debt ratio is a solvancy ratio.

A lower debt ratio shows the company is more stable in liability repayment and interest payment back.