Leverage ratios you can drag

Debt-to-equity is debt over equity. Debt-to-assets is debt over assets. The equity multiplier is assets over equity. When the debt line is total liabilities, any two of those figures fix the third, and debt-to-equity plus one is the equity multiplier exactly.

A company quoted at 2.67 and a company quoted at 1.67 can be the same company described twice. How leverage ratio works is the long form, with the leverage ratio calculator under the answer.

Debt is a fixed claim. A fall in asset values comes entirely out of equity, and the equity multiplier is the size of that amplification. A 10 percent asset fall times a multiplier of 2.67 is a 26.67 percent equity fall. The same multiplier lifts equity on the way up.

That is financial leverage, and it is not the same object as operating leverage, which lives in the cost base. Operating against financial leverage is the pair. The break-even explorer is the operating picture.

Some analysts use total liabilities. Others count interest-bearing debt only. Total liabilities always produces the higher ratio. None of the three is wrong on its own. Comparing a company measured one way against a company measured another way is. Banking uses the phrase for something different again, where a higher number means a safer bank.