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assets Equity ratio = total equity / total assets Equity multiplier = total assets / total equity Times interest earned = Earnings before interest and taxes / Interest expense Total assets to total liabilities = total assets / total liabilities Noncurrent assets to long term liabilities = noncurrent assets / noncurrent liabilities
Times interest earned Total assets to total liabilities Noncurrent assets to long term liabilities
Equity multiplier Times interest earned Total assets to total liabilities Noncurrent assets to long term liabilities
In internal comparative analysis, Holcim Inc. took advantage of the financial leverage in 2011 higher than in 2012. Most of the companys assets are contributed by the shareholders in 2012 as can be seen in the increase in equity to asset ratio from 2011 to 2012. Meanwhile, the competitor, Lafarge Inc. made use of the leverage more than that of Holcim Inc. in 2012 as well as in 2011. In the current year, Holcim inc. has 24.37% of debt relative to the amount of resources provided by owners. Of all the assets of the company, 19.83% are financed with debt while 80.17% are contributed by shareholders. This reflects the financial strength of the company and a factor considered by other creditors whether to invest or not. There is a greater probability that the creditors would invest to Holcim than Lafarge since the latters assets is covered by 28.58% debt. It can also be noted that Holcims debt ratio decreased from 2011 to 2012 while the competitors debt ratio increased. Ho wever, when it comes to financial leverage, Holcim is underleveraged. One factor is the very high return of times interest earned of 95.58 times. Other ratios can also be used a basis for interpreting how well the company make use of financial leverage. Too low leverage and too high leverage are both detrimental to the company since the former would result to lack of finances to support the companys operations while the latter would result to not being able to pay all the obligations to creditors. The company therefore needs to efficiently manage the funding of resources and the operations as a whole.