Debt ratios are also known as indicators of long-term financial stability. This group of indicators measures how the enterprise uses for financing the liabilities and how it is able to pay its obligation. The ratios are influenced by four basic factors: risk, taxes, asset type and degree of financial freedom of the enterprise.
Debt ratios can be divided into two groups:
- Balance sheet indicators - they are compiled from balance sheet items
Indicators of the degree of financial coverage - they are compiled from the income statement items