DMR commonly known by leverage ratios; shows the covering capacity for debt financing is being used by a firm. It is used to assess long-term solvency position; how firm is employing  the borrowed liquidity funds to finance its assets and how the organization is upholding to cover its debt in terms of satisfying fixed interest.


Debt-Asset Ratio

=Total debts/ Total assets

Debt Equity Ratio

=total debt/ total common equity

It is commonly known leverage ratio used to evaluate the long-term solvency of a firm. The ratio shows the relationship between the debit capital and equity capital (paid capital+ share premium stock+ undistributed profit net of fictitious assets).

Higher the ratio indicates  optimum contribution by creditors; which is, firm, risker  to creditors  as the firm may be unable to satisfy their claim. 

Equity Multiplier

=Total assets/Total common equity 


Market Debt Ratio

=Total debt/ (total debt+ Market Value of equity)

It is expressed in terms of market value. 

Liabilities-Assets Ratio

=Total liabilities/ Total assets 

This ratio measures the extent to which firm's assets are not financed by equity. 

Interest Coverage Ratio (times-interest- earned )

=EBIT/Interest Expense 

It estimates the time taken to  which interest on debt capital is covered by EBIT. The higher times earned ratio implies more safety to the creditors. 

EBITDA Coverage Ratio 

It evaluates the company's debt serving capacity out of all the cash flow available to services debt. 

=(EBITA+ Lease Payment)/(Interest+ Lease Payment+ Principle repayment)

Whereas, 

EBITDA is Earnings Before Interests, Taxes, depreciation and Amortization 

It measures risk; lower the ratio, the greater the risk to both owners and creditors.  It helps to assess the firm's ability to meet all fixed -payment such as interests, lease payments and principal repayments.