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Optimal Leverage Ratio In Company Management And Application Practices

Table 3: Financial leverage ratio (Ivashkovskaya, 2009)

No. Recommended rate ratio Coefficient indicator characteristic
1. 0.5 the coefficient for this indication is optimal (equal ratio of equity and debt capital)
2. 0.6 - 0.7 is considered a normal financial dependence ratio
3. below 0.5 this ratio speaks of the organization's too cautious approach to attracting debt capital and missed opportunities to increase the return on equity through the use of the effect of financial leverage.
4. If the level of this indicator exceeds the recommended number, it means that the company has a high dependence on creditors, which indicates a deterioration in the stability of its financial position. The higher the ratio, the more risks the company faces with respect to the potential for bankruptcy or a shortage of cash.
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