Maximum Leverage

Finance allah shmoop shmoop What is the debt to equity

ratio or duras It is named in insane asylums all

over the world Well it's a balance sheet computation that

tries very roughly to measure how efficient a company is

using its precious capital resource is the numerator comprises long

term liabilities on ly For most companies with debt the

amount of long term debt vastly outweighs the short term

So they ignore the short The denominator is the company's

shareholder's equity Easy You know that computation right ale and

think that's the capital invested in the business that's what

Isthe so what does it mean to have a high

durer Well if shmoop a loops llc a producer of

the most delicious cereal on the planet has four billion

dollars of debt And on lee fourteen dollars of equity

will you don't have to be a wall street genius

to get that that's bad right Tons of debt almost

no equity It means that loans comprise some ninety nine

percent of the company and well that it is essentially

owned by the bank and other creditors not by the

equity stake holders And you want steak Flip things around

Your cisco networks with a billion dollars of debt and

like fifty billion dollars of equity Well the shareholders clearly

owned this company The size of the equity dwarfs the

size of the debt Got it Bottom line High ratio

bad low ratio Good at least if you're one of

the owner investors But if you're a banker with a

hankering to own a cereal company well then today you 00:01:33.338 --> [endTime] might be able to just take one over girls