Debt Financing Module 5

These flashcards cover key terms and concepts related to debt financing, including important financial ratios such as Debt-to-Equity Ratio and Times Interest Earned Ratio.

Debt-to-Equity Ratio

A financial metric that measures the percentage of funds provided by creditors compared to stockholders.

Total Liabilities

The total amount of financial obligations a company owes to its creditors.

Total Stockholders’ Equity

The residual interest in the assets of the entity after deducting liabilities; essentially, the owners' claim on the company's assets.

Insolvency

The inability of a company to meet its debt obligations.

Creditors’ Protection

A measure of the security creditors have concerning the repayment of loans, especially in the event of insolvency.

Credit Risk

The risk that a borrower may not repay the loan as promised, impacting the lender financially.

Times Interest Earned Ratio

A metric that measures a company's ability to meet its interest payments on debt.

Earnings Before Interest and Taxes (EBIT)

A measure of a firm's profit that includes all incomes except interest expenses and income tax expenses.

Margin of Safety

The difference between sales and break-even sales; in the context of Times Interest Earned, it refers to the buffer a company has to meet interest payments.