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Would the Debt/Sales or Sales/Debt reveal anything?

The debt/equity and leverage ratio are both measures of liabilities, and they both take balance sheet items. The debt/equity geometric average (the sum of the all the debt of the companies divided by the sum of book values of all the companies) is about 0.71, and the geometric average (the sum of all the corporation's assets divided by the sum of all the book value of all the companies) of the leverage ratio is 2.42 for the 2794 publicly traded companies in the USA.

I am interested in comparing certain indebtedness ratios of the 2794 corporations with that of the US Government (USG). However, there are only a few analogies in which to draw conclusions.

For example, the Debt/GDP of the USG is analgous to the total Debt/ Revenues of the corporations. However, I noticed that the Debt/ Revenues is not widely used at all. I realize that this ratio has income statement and balance sheet metrics in it. But I think that it's quite useful, because debt is funded from revenue. As an FYI, the Debt/GDP and Debt/Revenue of the USG and US Corporations are:

0.671x for USG (from wikipedia.org) and 0.34x for US Corporations.

Why isn't Debt/Sales or Sales/Debt not more widely used than debt/ equity or interest coverage ratio? IMHO, Debt/Sales or Sales/Debt is a more "unrefined" measurement than the interest coverage ratio which takes EBIT/InterestPayments.

Interest payments is less fundamental of the debt. Debt dictates interest payments. Interest payments is less than the total debt.

EBIT is less fundamental than Sales. Sales dictates EBIT. EBIT is less than total revenues (or sales).

Therefore, my proposed ratio, the Sales/Debt, should provide a wealth of information that EBIT/InterestPayments provide.

Reply to
2.7182818284590...
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2.7182818284590... asked on 4/21/10 11:43 AM:

Yes.....it would show you have too much time on your hands.....if those results meant anything, they would be published daily.....

Reply to
Blash

What's the point ? With corps, the ratios do have some value in the sense that as the fashions/fad change on debt, you can see which corps do what you prefer debt wise, but that isnt true of the govt, particularly when the govt is responding to the complete implosion of the entire world financial system and there is no viable alternative to debt to avoid another great depression or worse.

And that is the other massive problem.

Not really. With a govt, one consideration with revenues/taxation is the effect that has on the state of the economy. While ever there are enough who are prepared to buy govt debt when interest rates are very low, it can make sense to use debt instead of increased taxation, particularly in situations like now where massively increasing taxation levels could easily kill the economy stone dead at a time when that is the last thing you want to do.

There is nothing like that with corps and they dont get to just change the revenue to anything they feel like changing it to either.

Because it doesnt measure anything useful. The other crucial variable is govt spending which can also be varied but which isnt included.

Not necessarily, most obviously with startups and takeovers.

And that doesnt prove a damned thing.

Essentially because its a meaningless ratio for a corp.

Less refined is a better way of saying it.

Thats is an important measure for a corp.

They are what matters for a corp tho except in the sense that fashion/fad matters with the debt levels, quite apart from the cost of that debt, the interest payments.

Yes, but what matters is whether the corp can cover the interest on the debt.

Yes, but thats no news.

Nope.

Reply to
Rod Speed

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