Management Ratios

Debt management ratios, also known as leverage ratios, show the extent to which a company is financed with debt. Companies that are financed with debt, rather than equity, must pay principal and interest on the debt at regular time periods. If they are unable to pay back these loans on time, creditors can force the firm to accelerate repayment or force it into bankruptcy. In many instances, loan covenants require companies to maintain certain ratio targets or go into default of the loan. Most long-term debt obligations contain covenants related to secured debt levels. 

Tax laws favor debt financing, but debt financing increases the financial risk for the company. Interest on long-term debt is tax deductible, whereas dividend payouts are not. Companies try to find an optimal mix of debt and equity financing to provide favorable returns for their common stockholders while minimizing financial risk. 

Debt management ratios are important to creditors. Before extending loans to companies, creditors need to know if the company can pay back the loan principal plus interest. The debt management ratios help determine this. 

The debt ratio, sometimes called total debt ratio or debt-to-assets ratio, shows how much of the company s funds come from sources other than equity. 

Debt ratio = Total liabilities/Total assets 

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The amount of backlog is an excellent management ratio used to assess the quality of the SCM. 

Investors, lenders, and management are concerned with a company s asset base. Does the firm have too many assets or too few assets Are the assets employed to generate an appropriate return for stockholders Not having the ideal amount of assets, either too many or too few, negatively affects cash flow and stock price. Companies strive to have an ideal amount of assets given their expectation of future sales. Too few assets and firms lose sales too many assets and firms incur unnecessary costs. Asset management ratios evaluate how efficiently a company uses its various resources. 

In order to maximize the excitation, precautions have to be taken to avoid cross-talk between excitation and signal. Therefore differential probes are commonly used with a SQUID system Nevertheless, for the discussed defects the SQUID system has a lower excitation field by a factor of about 100 compared with the commereial system This we must keep in mind, when we compare measured signal to noise ratios. There is a potential to improve for small defeets, when eross-talk is managed very well. 

Application. In the past, the break strength of a synthetic yarn has averaged 34.6 lb. The first-stage draw ratio of the spinning machines has been increased. Production management wants to determine whether the break strength has changed under the new condition. 

Good management practice will hold inventories at the lowest possible levels consistent with customer satisfaction and efficient plant operation. Excessive inventories are unproductive and are an investment having httle or no rate of return. Excessive inventories should be maintained only when supphes are erratic or rising in price. Management should normally aim for a high inventoiy-turnover ratio, as given by ... 

Similarly good management practice is to hold accounts receivable at a low level and to have a high accounts-receivable-turnover ratio, as given by... 

Since ratios, like balance sheets, refer to a particiilar point in time, they have a hmited use unless they are compared with previous values. A study of ratio trends indicates whether or not a company is approaching a working-capital or a hquidity crisis and may enable management to compare the performance of the company with that of competitors. 

No proposal for a laboratory ventilation system should be requested without a thorough study of the work to be performed. A once-through system may not always be required. The manager of a research laboratory, working closely with a designer, discovered that 50% recirculation would be permissible in their new building. While this is even less than in offices and stores, it proved to be adequate for their type of work. He would not recommend this ratio for other laboratories without a careful study. 

We know, from consulting to a wide range of pharmaceutical and biotech R D groups, that managements are under strong pressure to achieve a breakthrough in their own company performance and, collectively, in industry performance. Ultimately this must be quantified as the long-run ratio between the value created by new products and the costs of R D. 

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