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How to Calculate Debt Capital


How to Calculate Debt Capital</a>

Sources of formation of enterprise fundsAre divided into own and borrowed. In the accounting statements they are reflected in the liabilities of the balance sheet as the organization's accounts payable and own capital.

Knowing the amount of borrowed capital, you can first estimate the possibility of obtaining a bank loan from the company.



In the practice of lending to small and medium businesses, many banks use 2 indicators from the balance sheet as the main factors affecting the final loan amount:
1) the value of own capitalAnd the company-
2) the ratio of the amount of borrowed capitalBut to own funds and balance currency.


Own size capitalAnd in most cases the company can not beLess than the amount of the loan. This is the general rule of business lending: the client can not risk less than the risk of the bank. However, as competition in the financial services sector increased and the supply increased, banks and non-banking organizations began to use a different credit scheme.


It's no secret that commercial companies that exclusively provide services, as a rule, do not have a sufficient amount of their own capitala. As a result, they can not claim a large loan amount. However, profit on business quite allows to serve the requested credit. In this case, banks have a much more important relationship capitalBut to own funds and the overall financial condition of the company.


Despite the fact that each bank uses its own methodology for risk assessment, it is possible to highlight some generally accepted norms of analysis.
• If the ratio of borrowed capitalAnd to the balance currency is less than 30%, and the financial position is assessed as good - this means that the level of borrowed capitalBut admissible, and the company can apply for a loan.
• If the loan capital Is equal to own means, it is worth givingAttention to the analysis of trends in the financial condition of the company. The option of increasing accounts payable is possible due to deterioration of the company's position in the market.
• If the loan capital Accounts for more than 50% of the balance sheetMeans that in fact the company conducts business "from the wheels." In this case, the credit rating should include a more detailed analysis of the business and a deeper risk assessment.

How to Calculate Debt Capital Was last modified: June 20th, 2017 By Suumeusx
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