Best Practices for Equity Research Analysts : Essentials for Buy-Side and Sell-Side Analysts by James J. Valentine

Author:James J. Valentine [Valentine, James J.]
Language: eng
Format: mobi
Publisher: McGraw-Hill
Published: 2010-12-12T00:00:00+00:00

Excess leverage:

A debt-to-equity or debt-to-total-capital ratio much higher than sector peers is a sign of a company that may be unable to cover its debt obligations. Average values vary by sector, but generally a debt-to-equity ratio above 4.0 indicates high leverage and risk for a commercial or industrial firm. This rule of thumb does not apply to financial services firms, which are more highly leveraged.

Times interest earned (earnings before interest and taxes/interest expense): Values below 2.0 warn that the firm may not generate sufficient profit to cover its interest costs.

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