✦ Both lenders and borrowers can use some measures to assess the company’s debt capacity and necessity.
✦ We can start by looking at general measures like the EBITDA, the stability of profit margins, capital expenditures, competition and overall sector profitability.
✦ Balance sheet can come in handy with Debt-to-Equity ratio and other leverage ratios when analyzing the current company’s capital structure.
✦ Cash flow ratios turn out useful for a more specific analysis: the Debt-to-EBITDA ratio, for example, shows how many years a company can take to repay debt, since EBITDA is a rough measure of yearly cash flow.
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