Leverage ratios
How much does the business rely on debt, and how comfortably does it cover interest and repayments? Leverage ratios cover solvency and coverage: debt relative to equity and assets, and earnings relative to debt costs.
- Debt-to-equity ratio D/ERatio
Total liabilities ÷ Shareholders' equity - Debt-to-assets ratioRatio
Total liabilities ÷ Total assets - Interest coverage ratio TIE, ICRRatio
Operating income ÷ Interest expense - Debt service coverage ratio DSCR, DCRRatio
Net operating income (NOI) ÷ Annual debt service
Reading leverage ratios together
Leverage ratios look at debt from two angles. Balance sheet ratios such as debt-to-equity and debt-to-assets show how much of the business is funded by liabilities rather than by its owners. Coverage ratios such as interest coverage and the debt service coverage ratio show how comfortably earnings or cash flow meet the payments that debt requires.
Definitions vary more here than in most categories. Some sources count all liabilities as debt, others only interest-bearing borrowings, and lenders often set their own definitions in loan agreements. Each page states the definition it uses and the main variants, so check which one a lender or report means before comparing figures.
Financial statement map
Choose a line item to see which ratios use it, or choose a ratio to see its line items and the calculation.
Illustrative example company, not actual results. Balance sheet ratios use year-end balances.
Balance sheet (end of year)
Assets
Liabilities and equity
Income statement (year)
Ratios
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Line items and the ratios that use them (text view)
- Total liabilities
- Debt-to-equity ratio (numerator), Debt-to-assets ratio (numerator)
- Shareholders' equity
- Debt-to-equity ratio (denominator)
- Total assets
- Debt-to-assets ratio (denominator)
- Operating income
- Interest coverage ratio (numerator)
- Interest expense
- Interest coverage ratio (denominator)