Debt

Smart Investor: how to spot debt danger signs

This section is a condensation of this article.

He uses two indicators:

debt-to-equity ratio: below 75 percent is moderately geared, between 75 percent and 100 percent is slightly over-borrowed, and anything over 100 percent should be considered a substantial negative.

interest cover: anything below 4 is a concern, and anything below 3 is inadequate.

A company must pass both measures.

Various debt measures

Net Debt to EBITDA ratio. Ratios higher than 4 or 5 typically set off alarm bells. Source

Links to external sites

Bond credit rating - Wikipedia article explaining what those Moody, S&P and Fitch ratings are. Sort your AAA from your Caa3.

Pensions - frequently-updated list of pension deficits for the FTSE 100.

Author:  Mark Carter
Created: 01-Oct-2011
Updated: 15-Nov-2011