Ways to Improve
Debt to Equity Ratio: The most obvious way to improve this ratio and better position your business to survive any potential slowdown – either from the business itself or from outside influences – is to increase equity or lower debt or both. This could be done by:
- Using cash reserves or some means to pay down any debt (long- or short-term).
- Increase assets – without taking on debt to pay for them. This could be generating more cash in the business, more accounts receivables, more inventory or any fixed assets that does not have to be financed with additional debt – as equity is what is left over after you subtract out liabilities from assets.
- Increase equity into the business – by either placing more cash in the business (without obligation to that cash like debt), selling off unnecessary assets like plant, property or equipment, dispose of unprofitable operations or increase profits that are retained in the business.
- Profits can be increased by raising prices (as long as prices remain competitive), adding additional, profitable products and services or finding efficiencies in production or service or within the entire business – reducing expenses.
The goal is simple – to reduce debt in relation to equity in the business. Thus the business, should it face an adverse situation, not be straddled with enlarged debt payments – payments greater than revenue or profits generated.
- Back to Debt to Equity Ratio -
Other financial ratio calculations you may want to evaluate:
Disclaimer: These ratios are for education purposes only and are in no way an adequate substitute for a professional financial advisor.
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