IDEAS home Printed from https://ideas.repec.org/h/pal/pmschp/978-1-137-44710-4_5.html
   My bibliography  Save this book chapter

Good Regulation: Leverage and Liquidity

In: Good Regulation, Bad Regulation

Author

Listed:
  • Imad A. Moosa

    (Royal Melbourne Institute of Technology (RMIT))

Abstract

The level of debt held by a firm is measured by the leverage ratio, which is calculated in various ways, such as the debt ratio and the debt-to-equity ratio. With respect to a firm’s capital structure, the debt ratio (D/A) is simply total debt (D) divided by total assets (A), where assets are financed by equity and debt (A=E+D). The inverse of the debt ratio as defined here (A/D) may be called the asset multiple (with respect to debt). For example, if a firm has $10 million in debt and $40 million in assets, the debt ratio is 0.25 or 25 per cent. In an inverse form the ratio is 4:1. The corresponding capital ratio (E/A), where capital is taken to be equity, is 0.75 or 75 per cent. In an inverse form, the ratio is 4:3—that is, for each dollar of equity the firm has 1.3 dollars in assets. The debt ratio and capital ratio are related, in the sense that when one is fixed the other is determined automatically.

Suggested Citation

  • Imad A. Moosa, 2015. "Good Regulation: Leverage and Liquidity," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Good Regulation, Bad Regulation, chapter 5, pages 78-97, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-1-137-44710-4_5
    DOI: 10.1057/9781137447104_5
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pal:pmschp:978-1-137-44710-4_5. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.palgrave.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.