Debt-to-Asset Ratio
factor.formula
Leverage Ratio:
The formula calculates a company's leverage ratio, which is the ratio of total liabilities to total assets, at the end of a specific reporting period.
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Refers to the total amount of all debts incurred by an enterprise at the end of a specific reporting period, including current liabilities and non-current liabilities. Current liabilities refer to debts that need to be repaid within one year or one operating cycle, such as short-term loans and accounts payable; non-current liabilities refer to debts that have a repayment period of more than one year or one operating cycle, such as long-term loans and bonds payable. This data comes from the company's balance sheet.
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Refers to the total amount of all assets owned by an enterprise at the end of a specific reporting period, including current assets and non-current assets. Current assets refer to assets that can be converted into cash or consumed within one year or one operating cycle, such as cash, accounts receivable, inventory, etc.; non-current assets refer to assets that cannot be converted into cash or consumed within one year or one operating cycle, such as fixed assets, intangible assets, etc. This data comes from the company's balance sheet.
factor.explanation
The leverage ratio (asset-liability ratio) is a key indicator for assessing a company's financial structure and risk level. A higher leverage ratio usually means that the company has used more debt financing, which may bring higher profit potential, but also comes with higher financial risks. Specifically:
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The meaning of a high leverage ratio: It means that a larger proportion of the company's assets are obtained through debt financing, which may mean that the company is more vulnerable to interest rate changes and debt maturity pressure, has a higher debt repayment risk, and needs to pay close attention to its cash flow and profitability.
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The meaning of a low leverage ratio: It means that the company's financial structure is relatively stable and relies more on its own capital, but it may also mean that the company has failed to fully utilize the advantages of debt financing to expand its business scale and increase shareholder returns.
Risk warning:
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Industry differences: The leverage ratio levels of different industries vary greatly. For example, heavy asset industries (such as real estate and infrastructure construction) usually have higher leverage ratios, while light asset industries (such as software and the Internet) usually have lower leverage ratios. Therefore, when comparing the leverage ratios of different companies, industry factors should be considered.
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Development stage: The leverage ratios of companies at different stages of development may also vary. For example, a start-up may have a low leverage ratio due to financing difficulties, while a mature enterprise may appropriately increase the leverage ratio in order to improve returns.
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Financial risk: An excessively high leverage ratio will increase the financial risk of the enterprise, making it more vulnerable to economic downturns and market fluctuations. Therefore, enterprises should control the leverage ratio within a reasonable range based on their own operating conditions and industry characteristics.
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Cyclical changes: The leverage ratio may fluctuate with changes in the economic cycle. During economic booms, enterprises may tend to increase leverage; during economic recessions, they may reduce leverage. Therefore, when analyzing the leverage ratio, economic cycle factors should also be considered.
Application in quantitative finance: The leverage ratio can be used as an important input variable of the quantitative stock selection model to screen out investment targets with a sound financial structure and low risk. It can also be used in combination with other financial factors to build a more effective stock selection strategy.