What is the leverage ratio and its importance in capital structure decision?

Leverage ratio refers to the ratio of a company's financial solvency. The leverage ratio is mainly used to reflect the ratio of a company to raise funds by issuing bonds, the relationship between the company's debt and the company's daily income, and the company's ability to repay debts and perform bonds. When investors buy a company's bonds, they can analyze the company's ability to repay bonds through the company's leverage ratio, which can effectively reduce risks.

Classification of financial leverage ratio

1, equity ratio: the equity ratio is also a kind of financial leverage ratio, which mainly reflects the ratio of the company's debt funds to the equity funds provided to the debtor. Mainly measure whether the financial structure of listed companies is stable;

2. Asset-liability ratio: Asset-liability ratio has a great relationship with the company's financial risk, and this debt ratio also reflects the importance of debt in the company;

3. The ratio of debt to capital in a long period: the capital in a long period is the sum of the company's long-term liabilities and the company's shareholders' equity.