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Leverage ratio forecast the long term solvency of a firm. Leverage Ratios help to measure risk
that a business faces. It helps to assess level of debt and decides whether this level is appropriate
for your business or not.
Commonly used Leverage ratios encompass:
i.
Debt to equity
ii.
Solvency Ratio
iii.
iv.
EXIDE PAKISTAN
Years
Formula/Calculation
Ratio
Formula/Calculation
Ratio
2007
419,244 / 335,998
1.25
554,026 / 505,021
1.10
2008
626,638 / 406,312
1.54
1,018,053 / 590,314
1.72
2009
594,824 / 531,546
1.12
1,055,623 / 725,964
1.45
2010
656,000 / 684,154
0.96
1,754,611 / 900,499
1.95
2011
952,136 / 954,745
1.0
2,412,097 / 1,148,488
2.10
2012
1,117,871 / 1,340,066
0.83
2,048,596 / 1,444,724
1.42
2013
1,662,010 / 1,801,347
0.92
1,474,384 / 1,898,765
0.78
2014
2,768,642 / 2,384,566
1.16
3,302,413 / 2,281,470
1.45
Graphical Representation
2.5
1.5
Atlas Battery
Exide Pakistan
0.5
0
2007
2008
2009
2010
2011
2012
2013
2014
Analysis
If debt-to-equity ratio is 1.00 means that half of the assets of a business are financed by debts and
half by shareholders' equity. A value higher than 1.00 means that more assets are financed by
debt that those financed by money of shareholders' and vice versa. The debt to equity ratio of
Atlas Battery has satisfactory, some of the years company has decrease from 1 it means company
has less risky, its favorable for company and company has more financially stable and the
remaining years company has more assets are financed by debt that those financed by money of
shareholders' its unfavorable and its risky for company while the Exide Pakistan is more risky
then Atlas Battery because in six years company has high debt to equity ratio, company assets
are financed by the debts which is unfavorable to the company.
Propriety/Equity Ratio
The equity ratio is a financial ratio indicating the relative proportion of equity used to finance a
company's assets. The Equity ratio is a good indicator of the level of leverage used by a
company. The Equity ratio measures the proportion of the total assets that are financed by
stockholders and not creditors. The equity ratio throws light on a companys overall financial
strength. Besides, it is also treated as a test of the soundness of the capital structure. A higher
equity ratio or a higher contribution of shareholders to the capital indicates a companys better
long-term solvency position. A low equity ratio, on the contrary, includes higher risk to the
creditors.
Formula:
EXIDE PAKISTAN
Years
Formula/Calculation
Ratio
Formula/Calculation
Ratio
2007
335,998 / 755,242
44
505,021 / 1,303,162
39
2008
406,312 / 1,206,736
34
590,314 / 1,847,474
32
2009
531,546 / 1,300,156
41
725,964 / 2,036,587
36
2010
684,154 / 1,513,940
45
900,499 / 2,904,612
31
2011
954,745 / 2,080,667
46
1,148,488 / 4,010,501
29
2012
1,340,066 / 2,631,723
51
1,444,724 / 3,933,246
37
2013
1,801,347 / 3,637,143
49
1,898,765 / 3,803,185
50
2014
2,384,566 / 5,326,994
45
2,281,470 / 6,069,410
37
Graphical Representation
60
50
40
Atlas Battery
30
Exide Pakistan
20
10
0
2007
2008
2009
2010
2011
2012
2013
2014
Analysis
A ratio used to help determine how much shareholders would receive in the event of a companywide liquidation. From the above graphical representation the equity ratio of Atlas Battery and
Exide Pakistan is showing irregular trends. Atlas Battery is showing better equity position and
has a higher equity ratio of shareholders to the capital indicates a companys better long-term
solvency position against the Exide Pakistan. Atlas Battery is continuous increasing in 2008 to
2012, while Exide Pakistan is irregular trends but they decreasing against Atlas Battery.
Solvency Ratio
Solvency ratios measure the ability of a company to pay its long term debt and the interest on
that debt. Solvency ratios, as a part of financial ratio analysis, help the business owner determine
the chances of the firm's long-term survival. Solvency ratios are of interest to long-term creditors
and shareholders. These groups are interested in the long-term health and survival of business
firms. In other words, solvency ratios have to prove that business firms can service their debt or
pay the interest on their debt as well as pay the principal when the debt matures.
Formula:
ATLAS BATTERY
EXIDE PAKISTAN
Years
Formula/Calculation
Ratio
Formula/Calculation
Ratio
2007
100 - 44
56
100 - 39
61
2008
100 - 34
66
100 - 32
68
2009
100 - 41
59
100 - 36
64
2010
100 - 45
55
100 - 31
69
2011
100 - 46
54
100 - 29
71
2012
100 - 51
49
100 - 37
63
2013
100 - 49
51
100 - 50
50
2014
100 - 45
55
100 - 37
63
Graphical Representation
80
70
60
50
Atlas Battery
40
Exide Pakistan
30
20
10
0
2007
2008
2009
2010
2011
2012
2013
2014
Analysis
Both companies solvency ratio has been satisfactory and efficient. Exide Pakistan has high
solvency ratio it means company financed source is more than 50% to its equity in all the years,
company has strong financial position and company well manage and utilizing its equity sources
and well controlled to its debt financing while Atlas Battery solvency ratio has also good and
they controlled to its debt financing and it depends more than 50% on equity financed but Its not
better then Exide Pakistan. Exide Pakistan has high ratio against Atlas Battery.
Years
Formula/Calculation
2007
EXIDE PAKISTAN
Ratio
Formula/Calculation
Ratio
122,257 / 22,042
5.55
139,859 / 32,915
4.25
2008
164,131 / 41,536
4.0
143,154 / 49,099
3.0
2009
272,880 / 43,537
6.30
182,003 / 82,521
2.2
2010
341,289 / 19,857
17.2
303,554 / 78,948
4.0
2011
525,101 / 37,515
14.0
429,726 / 128,489
3.3
2012
689,649 / 69,896
10.0
500,926 / 157,099
3.2
2013
822,898 / 59,946
14.0
754,329 / 38,327
20.0
2014
1,022,768 / 126,025
8.11
603,457 / 96,423
6.26
Graphical Representation
25
20
15
Atlas Battery
Exide Pakistan
10
0
2007
2008
2009
2010
2011
2012
2013
2014
Analysis
Both companies has not favorable and both companies must focus on interest or debt services
because if they unable to increase interest coverage ratio there is more debt burden on both
companies and greater the possibility of bankruptcy of a firm.
From the above graphical representation it is showing Atlas Battery has higher ratio indicates a
better financial health as it means that the company is more capable to meeting its interest
obligations from operating earnings and Exide Pakistan has lower ratio it is not favorable for the
company because company has more debt burden. Only one year company has higher ratio and
other years company unable pay its debt services.