debt gearing

Examples of debt gearing in the following topics:

• Overview of Convertible Securities

  • It is a hybrid security with debt and equity-like features.
  • Although a CB typically has a coupon rate lower than that of similar, non-convertible debt, the instrument carries additional value through the option to convert the bond to stock, and thereby participate in further growth in the company's equity value.
  • The advantage for companies of issuing CBs is that, if the bonds are converted to stocks, the company's debt vanishes.

• Debt to Equity

  • Closely related to leveraging, the ratio is also known as risk, gearing or leverage.
  • 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

• Defining Financial Leverage

  • At it's simplest, leverage is a tactic geared at multiplying gains and losses.
  • In short, the ratio between debt and equity is a strong sign of leverage.
  • Debt is often lower cost access to capital, as debt is paid out before equity in the event of a bankruptcy (thus debt is intrinsically lower risk for the investor).
  • Let's say equity represents 60% of borrowed capital and debt is 40%.
  • The organization owes 10% on all equity and 5% on all debt.

• Capital Structure Overview and Theory

  • For example, a firm that sells 20 billion dollars in equity and 80 billion dollars in debt is said to be 20% equity-financed and 80% debt-financed.
  • Gearing Ratio is the proportion of the capital employed by the firm which comes from outside of the business, such as by taking a short term loan.
  • It states that there is an advantage to financing with debt (the tax benefits of debt) and that there is a cost of financing with debt (the bankruptcy costs and the financial distress costs of debt).
  • The marginal benefit of further increases in debt declines as debt increases, while the marginal cost increases, so that a firm that is optimizing its overall value will focus on this trade-off when choosing how much debt and equity to use for financing.
  • When that is depleted, debt is issued.

• Intervals and tests for p1 - p2 .

  • A remote control car company is considering a new manufacturer for wheel gears.
  • The quality control engineer from Exercise 6.11 collects a sample of gears, examining 1000 gears from each company and finds that 899 gears pass inspection from the current supplier and 958 pass inspection from the prospective supplier.
  • That is, we have statistically significant evidence that the higher quality gears actually do pass inspection more than 3% as often as the currently used gears.
  • 6.11: H 0 : The higher quality gears will pass inspection no more than 3% more frequently than the standard quality gears. p highQ −p standard = 0.03.
  • H A : The higher quality gears will pass inspection more than 3% more often than the standard quality gears. p highQ − p standard > 0.03.

• Teaching at Community Colleges

  • Another attractive quality about community colleges is that they are often geared toward local students and local needs.
  • Community colleges can also work with local businesses to develop customized training geared toward local needs, whereas a four-year institution generally focuses on state-wide or national needs.
  • Although a degree from a community college is, on average, less financially lucrative in the long term than a university degree, new research into earnings shows that recent community-college graduates often earn a higher salary than recent graduates of four-year universities, and are much less burdened by tuition debt.

• 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.

• 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.