Important Updates for Investors
Carla Pasternak's Premiere Issue of High-Yield International Just
Released
Income expert Carla Pasternak's debut issue of High-Yield
International covers a Taiwanese manufacturer yielding 9.5%... a
rare Mexican monopoly yielding 13.4%... and other top-performing
investments yielding up to 19.0%.
Government's Biofuel Timetable Could Spell +15,900% Growth
+15,900% growth might seem far-fetched... but it's not. In fact, it
is mandated by law. And I've identified the ONLY stock positioned to
capture this growth.
The
Silver Lining to a Falling Dollar
Despite the U.S. national debt, there is a silver lining for income
investors. This massive spending, combined with movement out of U.S.
Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
higher dividends. |
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| Debt-to-Equity
Ratio |
What It Is:
The debt-to-equity ratio is a measure of the relationship between the capital contributed by creditors and the capital contributed by shareholders. It also shows the extent to which shareholders' equity can fulfill a company's obligations to creditors in the event of a liquidation.
Here is the formula for the debt-to-equity ratio:
Total Debt/Total Equity = Debt-to-Equity Ratio
How It Works/Example:
Here is some information about Company XYZ:
| Short-Term Debt |
$5,000,000 |
| Long-Term Debt |
$10,000,000 |
|
Total Debt |
$15,000,000 |
| |
|
| Common Equity |
$500,000 |
| Preferred Equity |
$250,000 |
| Additional Paid In Capital |
$6,000,000 |
| Retained Earnings |
$3,250,000 |
|
Total Shareholders' Equity |
$10,000,000 |
Using the debt-to-equity formula and the information above, we can calculate that Company XYZ's debt-to-equity ratio is:
$15,000,000/$10,000,000 = 1.5 times, or 150%
This means that for every dollar of Company XYZ owned by the shareholders, Company XYZ owes $1.50 to creditors.
It is important to note that there are many ways to calculate the debt-to-equity ratio, and therefore it is important to be clear about what types of debt and equity are being used when comparing debt-to-equity ratios. For example, the analyst's definition of debt may or may not include all short-term and long-term fixed obligations, including subordinated convertible debt, operating liabilities such as accounts payable and accrued liabilities, and leases, contractual obligations, or other forms of financing that may not appear on the balance sheet. Additionally, some analysts may consider preferred stock as debt rather than equity in this calculation, and some analysts also argue that deferred taxes should be considered in the debt portion of the calculation because some forms of deferred taxes may never be paid and are thus part of a company's capital base.
Why It Matters:
In general, a high debt-to-equity ratio indicates that a company may not be able to generate enough cash to satisfy its debt obligations. However, low debt-to-equity ratios may also indicate that a company is not taking advantage of the increased profits that financial leverage may bring.
Capital-intensive industries tend to have higher debt-to-equity ratios than low-capital industries because capital-intensive industries must purchase more property, plants, and equipment to operate. This is why comparison of debt-to-equity ratios is generally most meaningful among companies within the same industry, and the definition of a "high" or "low" ratio should be made within this context.
Lenders and investors usually prefer low debt-to-equity ratios because their interests are better protected in the event of a business decline. Thus, firms with high debt-to-equity ratios may not be able to attract additional capital.
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Who Cares What the Market is Doing When You're Pulling in $28,900 a
Year in Dividends?
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Putting $50,000 on the Line in Our NEW Stock of the Month Portfolio
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Two
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Since the stimulus package was signed into law on
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Investing Doesn't Get Any Easier Than This |
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