Total Outside Liabilities to Tangible Net Worth (TOL/ TNW) Formula

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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Debt Equity Ratio - Formula

Debt Equity Ratio Formula:

Debt Equity Ratio Formula

Meaning:

Debt Equity Ratio measures the firm's ability to meet its long-term obligations on time, by comparing with the firm's own money or net worth. As a measure of additional safety, value of intangible assets like goodwill and brands are deducted from the net worth.

Example:

Example Calculation of Debt Equity Ratio of NMDC Ltd.

Required Number:

The Debt Equity Ratio must be one or below. Lower the number than one so much stronger the company is and vise-versa.