Computations
Balance Sheet
This ratio compares the capital invested by stockholders with the capital provided by creditors for long term use in the business. This can be used to measure a dealer's ability to secure additional creditor capital (leverage) and the level of risk in event of a business downturn. For purposes of this computation, funds loaned to the business from the owners is considered as part of the equity and excluded from the debt.
Example:
|
$40,000 |
|
|
$350,000 |
|
|
Account 336 - Other Notes and Contracts |
$86,000 |
|
Account 333 - Deferred Taxes |
$24,000 |
|
Account 338 - Notes Payable - Affiliated Companies |
$-0- |
|
Subtotal - Long Term Debt |
$500,000 |
|
Divided by: |
/ |
|
Total Net Worth + Account 337 Other Notes - Owner Subtotal - Net Worth (Owner's Equity) |
$1,250,000 $250,000 $1,500,000 |
|
Ratio of Debt to Net Worth |
.33 |