1. What is Financial Leverage Ratio?

The Financial Leverage Ratio (FLR) measures a company's financial leverage by comparing total debt to total equity. It indicates how much debt a company is using to finance its assets relative to the amount of equity.

2. How Does the Calculator Work?

The calculator uses the Financial Leverage Ratio formula:

Where:

• \( FLR \) — Financial Leverage Ratio (dimensionless)
• \( \text{Total Debt} \) — Total debt obligations in USD
• \( \text{Total Equity} \) — Total shareholders' equity in USD

Explanation: The ratio shows the proportion of debt financing relative to equity financing in a company's capital structure.

3. Importance of Financial Leverage Ratio

Details: This ratio is crucial for assessing a company's financial risk, capital structure efficiency, and ability to meet debt obligations. It helps investors and creditors evaluate the company's leverage position and financial stability.

4. Using the Calculator

Tips: Enter total debt and total equity in USD. Both values must be positive, with total equity greater than zero. The result is expressed as a dimensionless ratio.

5. Frequently Asked Questions (FAQ)

Q1: What is a good Financial Leverage Ratio?
A: Generally, a ratio below 2.0 is considered healthy, but this varies by industry. Higher ratios indicate more debt reliance and potentially higher financial risk.

Q2: How does FLR differ from Debt-to-Equity Ratio?
A: FLR and Debt-to-Equity Ratio are essentially the same calculation, both measuring the relationship between debt and equity financing.

Q3: What does a high FLR indicate?
A: A high FLR suggests the company relies heavily on debt financing, which may increase financial risk but can also amplify returns on equity when profitable.

Q4: Can FLR be negative?
A: FLR can be negative if total equity is negative, indicating accumulated losses exceeding contributed capital, which is a serious financial concern.

Q5: How often should FLR be calculated?
A: FLR should be calculated quarterly with financial statements and monitored regularly to track changes in capital structure and financial risk.