#ForexChief #FinancialLeverage #FinancialCondition #DebtToEquity #stocks #StockExchange #PotentialProfits⠀
💵 Multiplier D/E: how to estimate the company's debts⠀
💱 Financial leverage (Debt to Equity ratio) − shows the percentage of the company's debt against equity. This is a qualitative assessment of the capital of any business, which must be paid attention to when studying the financial statements of companies.
⠀
Debt/Equity (or D/E) is calculated as (Liabilities/Assets) and helps to assess solvency, financial condition, development prospects and potential profits.
⠀
So if Debt to Equity:• Equal to zero - the company does not use credit capital, the activity is very cautious, the company develops steadily, but slowly, due to which part of the potential profit is lost.
• In the range from 0 to 1 − the company uses loans, but you need to clearly understand how these funds are spent. If this is an attempt to compensate for previous debts, then the danger of bankruptcy is high. If borrowed capital is used for business development, then confident profit growth is possible.
• More than 1 − the volume of borrowed funds raised by the company is more than its own capital (!). A dangerous situation: if the company does not have enough funds to pay off current financial obligations, then bankruptcy cannot be avoided.
⠀
Debt/Equity depends on the industry. Theoretically, a value in the range of 0.5-0.7, but not more than 1, is considered optimal. This means that the company maintains a reasonable credit policy and has positive development prospects. However, there are sectors of the economy in which the D/E value of more than 10 is allowed, for example, banks and the financial industry as a whole.
⠀
For investment valuation, Debt to Equity must be used in conjunction with other multipliers. Company debts are not always considered negative: due to loans, the company can optimize, master new technologies and expand its business. And all this in the future can lead to an increase in investor profits.
⠀
Profits to y’all!