How to see whether the asset-liability ratio of enterprises is high or not?

Asset-liability ratio, also known as debt operating ratio, is used to measure the ability of enterprises to use the funds provided by creditors to conduct business activities and reflect the security of creditors' loans. Asset-liability ratio = total liabilities/total assets * 100%. A high asset-liability ratio means that total liabilities account for a relatively large proportion of total assets, which generally means that the ability of enterprises to repay debts is declining and the development ability of enterprises is weakening.

When the asset-liability ratio of an enterprise is greater than 60%, it is considered high. If the asset-liability ratio reaches 100% or exceeds 100%, the company has no net assets or is insolvent.

At the same time, enterprises have high asset-liability ratio and high financial risks, which may lead to bankruptcy in the case of insufficient cash flow and broken capital chain. High asset-liability ratio will increase the cost of further financing, mainly because banks and investors have certain requirements for asset-liability ratio.

Asset-liability ratio, also known as debt operation ratio [1], is the percentage of total liabilities divided by total assets at the end of the period, and it is a comprehensive index to evaluate the company's debt level, reflecting the proportion of capital provided by creditors to total capital.

The asset-liability ratio can be used to measure the ability of enterprises to use the funds provided by creditors for business activities, and also to reflect the security of creditors' loans.

creditor

From the standpoint of creditors, they are most concerned about the safety of various financing methods and whether the principal and interest can be recovered on schedule. If the capital provided by shareholders only accounts for a small proportion of the total assets of the enterprise, the risks of the enterprise are mainly borne by creditors, which is unfavorable to creditors. Therefore, creditors hope that the lower the asset-liability ratio, the better, the debt repayment of enterprises can be guaranteed, and there will be no great risk in financing enterprises.

investor

From the standpoint of investors, investors are concerned about whether the profit rate of all capital exceeds the interest rate of borrowed capital, that is, the interest rate of borrowed funds. If the profit rate of all capital exceeds the interest rate, the profit gained by investors will increase. On the contrary, the profit rate of using all capital is lower than the interest rate of borrowing funds.

Investors' profits will be reduced, which is not good for investors. Because the excess interest of borrowed capital is compensated by the share of profits that investors get, investors hope that if the profit rate of all capital is higher than the interest of borrowed capital, the higher the asset-liability ratio, the better, and vice versa.

operator

From the operator's point of view, if the amount of debt is large and exceeds the psychological endurance of creditors, the enterprise will not be able to raise funds. The greater the amount of money borrowed (not blindly borrowing, of course), the more dynamic the enterprise appears.

Therefore, operators hope that the asset-liability ratio is slightly higher, and they can expand production scale, open up markets, enhance the vitality of enterprises and obtain higher profits through lending.

Profit and net cash flow analysis

The growth of enterprise's asset-liability ratio first depends on whether the profit realized by the enterprise in that year has increased compared with the same period of last year, and whether the growth rate of profit is greater than the growth rate of asset-liability ratio.

If it is greater than, it will bring positive benefits to the enterprise and increase the owner's equity of the enterprise. With the increase of the owner's equity, the asset-liability ratio will also decrease accordingly. Secondly, it depends on the net cash inflow of enterprises. When enterprises borrow a lot to achieve higher profits, there will be more cash inflows, which shows that enterprises have a certain ability to pay in a certain period of time, can repay debts and guarantee the rights and interests of creditors, and also shows that the business activities of enterprises are in a virtuous circle.