TOL / TNW Formula:
TOL/ TNW Ratio Formula |
Meaning:
This ratio measures the total leverage employed by the business; meaning that the firm has used its net worth as a lever to raise outside funds.
Too much of leverage is not good as it may pose a problem for the organisation to repay the obligations during periods of stress.
Example:
TOL/ TNW Example of NMDC Ltd. |
Recommended Number:
TOL/ TNW shall be less than 3 - meaning that a business can have total outside liabilities of a maximum of three times its tangible net worth. Lower number means more safety and a higher number means weakness.
Infographic:
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