The formula to calculate the Long Leverage Ratio is:
\[ L = \frac{A}{E} \]
Where:
Let's say the total assets (A) are $500,000 and the shareholders' equity (E) is $200,000. The Long Leverage Ratio would be calculated as follows:
\[ L = \frac{500,000}{200,000} = 2.5 \]
So, the Long Leverage Ratio is 2.5.
Long leverage, also known as financial leverage or gearing, is a measure of the degree to which a company uses borrowed money (debt) to finance its operations and growth. It is calculated by dividing the total assets of a company by its shareholders' equity. A higher leverage ratio indicates that a company is using more debt relative to its equity, which can amplify both gains and losses. Companies with high leverage are considered to be at higher financial risk, especially if they face difficulties in meeting their debt obligations.
