.

1 Debt to Equity

Stock Investing for Individuals

The debt to Equity ratio is used to evaluate a company’s leverage. It is calculated by dividing a
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Now when we look at the balance sheet of Apar industries we get:

Debt= Rs. 212 Cr. (191+21)

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Equity = Rs. 1,409 Cr.

Balance Sheet
Debt Assets

Debt
Equity
Equity

This is how you formulate from

a company’s balance sheet.

Formula: Debt /
Equity
= 212 /
1409
= 0.13

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helps us analyze that the company is in a strong position in terms of solvency,
as it can easily repay its debts. It shows that the company is mainly funded by
equity and not debt and as a result, the company can repay debt at any point,
it has enough resources. This shows high solvency of the company.

We can directly access these ratios on the screener and other tools
that we have seen in previous sections. 223
 .2 Interest Coverage Ratios
Stock Investing for Individuals

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outstanding debt. In simple terms, it means how easily the entity can cover its interest expenses
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For instance, Company A

has, has,
Earnings = Rs. 700 Cr. Earnings = Rs. 150 Cr.
And, if
Interest = Rs. 100 Cr. Interest = Rs. 100 Cr.

We are reasonably confident that we Business might be unable to pay

can pay the interest on our debt. back the interest.

Formula: EBIT /
Interest
Where EBIT = Earnings before interests and taxes
To calculate the interest coverage ratio,

Now when we look at the balance sheet of Apar industries we get:

PBT (Profit before tax) = Rs. 208 Cr.

+ Interest (Finance Cost) = Rs. 136 Cr.
So for EBIT we will have to add PBT and interest amount.
EBIT = PBT + Interest Amount = Rs. 344 Cr.

Interest Coverage Ratio = EBIT /

Interest
= 344 / = 2.5 Times
136
Here we can say that interest is fairly covered.

The Debt to Equity ratio is low and the interest is well

covered. Therefore, we can conclude that Apar Industries is
solvent in the long run and is not under any threat.
224