Investment Basics: Leverage and Coverage Ratio

A low equity ratio will produce good results for stockholders as long as the company earns a rate of return on assets that is greater than the interest rate paid to creditors.

The debt retirement ratio provides an estimate on the balance of total provision and pension provision. . A very good value would be a 3 whilst a number severely below 3 would mean that hte Company is spending too much money on pension provision.

A high operating cash flow margin can indicate that a company is efficient at converting sales to cash, and may also be an indication of high earnings Quality. A good result for this ratio would be 15% or more.

The return on assets figure gives investors an idea of how effectively the company is converting the money it has to invest into net income. The higher the return on assets number, the better, because the company is earning more money on less investment. A very good rate for the return on assets would be 10%.

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