It has puzzled me for some time, about how to understand the financial health of a company.
One ratio you can use is the Debt/Equity ratio, which is also leverage ratio, I suppose.
It might seem straight forward, but not really.
It is not total liabilities divide by total equity.
So how do you get the figure?
Go to balance sheet, go to the liabilities section.
For both of the long term and short term portion, look for descriptions with 'debt' in it.
Total them up, and divide it by total equity.
That is how you get your debt/equity ratio.
Warren Buffet only buys company with debt/equity ratio of 0.5 or below.
In other words, there are 2 times more equity than debt.
Chip Eng Seng has d/e ratio of 0.8.
Sembcorp Marine has d/e ratio of 0.4.
So today, I learnt something more about finance/
An important one, a new dimension of viewing companies.
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