F i n d t h o u s a n d s o f f i n a n c i a l t e r m s a t w w w . f t p a l l . c o m
• Debt is a higher priority claim (in liquidation') compared to equity. These payments
must be made, otherwise the firm will be subject to court-ordered bankruptcy orliquidation. It is also called leverage.
• Money borrowed.
• Ability to borrow. The amount a firm can borrow up to the point where the firm
• All long
• Debt covenants spell out the details of the debt contract. For instance, the level
and the timing of the promised interest rate and principal payments are explicitlystated. The covenants restrict the ability of the borrower to increase the risk of thefirm after debt is taken on, or drain the assets of the firm. They are also designed toprovide early warning signals if the health of the firm begins to weaken.Debt displacement
• The amount of borrowing that leasing displaces. Firms that do a lot of leasing will
be forced to cut back on borrowing.Debt due
• The sum of bank and other notes payable in 12 months or less, and the portion of
• Measures the ratio of long
• Raising money for working capital or for capital expenditures by selling bonds, bills,