1. What is the Leverage Ratio?

The Leverage Ratio measures a company's financial leverage by comparing its total liabilities to shareholders' equity. It indicates how much of the company's assets are financed by debt versus equity.

2. How Does the Calculator Work?

The calculator uses the Leverage Ratio formula:

Where:

• Total Liabilities — All financial obligations of the company (USD)
• Shareholders Equity — The residual interest in assets after deducting liabilities (USD)

Explanation: A higher ratio indicates more debt financing relative to equity, which may suggest higher financial risk.

3. Importance of Leverage Ratio

Details: The Leverage Ratio is crucial for assessing a company's financial health, risk profile, and ability to meet its financial obligations. It's used by investors, creditors, and analysts to evaluate capital structure.

4. Using the Calculator

Tips: Enter total liabilities and shareholders equity in USD. Both values must be positive numbers. The result shows how many dollars of liabilities exist for each dollar of equity.

5. Frequently Asked Questions (FAQ)

Q1: What is a good Leverage Ratio?
A: This varies by industry, but generally a ratio below 2 is considered acceptable, while above 3 may indicate higher financial risk.

Q2: How does this differ from debt-to-equity ratio?
A: The Leverage Ratio includes all liabilities (not just debt), making it a more comprehensive measure of financial leverage.

Q3: When is a high Leverage Ratio problematic?
A: When interest coverage is low, cash flow is unstable, or during economic downturns when refinancing debt may be difficult.

Q4: Can the ratio be less than 1?
A: Yes, a ratio less than 1 means equity exceeds liabilities, indicating conservative financing with less reliance on debt.

Q5: How often should this ratio be calculated?
A: For monitoring purposes, it should be calculated quarterly along with financial statements, or when significant financial changes occur.