Dividend Discount Model: Gordon Growth Rate
In the previous article, we became aware that the value of a stock can be split into two parts. One part is the horizon period i.e. the period chosen by the analyst for which they believe they can accurately forecast the financials of the company and therefore its dividends. This part remains the same when […]
Fixed-Rate Mortgage vs. Adjustable Rate Mortgage
We already know that a mortgage is one of the biggest expenses that any investor has. It is also common knowledge that the interest rate is the biggest determining factor of the dollar value of each month’s mortgage payments. The interest rate of the mortgage is often the subject of a lot of discussions. This […]
Portfolio Revision – Meaning, its Need and Strategies
What is a Portfolio ? A combination of various investment products like bonds, shares, securities, mutual funds and so on is called a portfolio. In the current scenario, individuals hire well trained and experienced portfolio managers who as per the client’s risk taking capability combine various investment products and create a customized portfolio for guaranteed […]
The Concept of Financial Freedom
Every activity done by human beings is generally linked to a larger goal, a pursuit to achieve something important in life. Financial planning is also not very different in this regard. The month to month activity of financial planning is tied with a larger goal. For most people, financial freedom is an important milestone in […]
The Economics of ‘Soda Taxes’
Sugary beverages manufactured by companies such as Coca-Cola and Pepsi are colloquially called “soda” in the United States. Americans consume soda in large quantities. This consumption can be attributed to the fact that soda is easily and cheaply available. The low cost and easy availability are considered to be one of the main reasons why […]
The proprietary ratio is not amongst the commonly used ratios. Very few analysts prescribe its usage. This is because in reality it is the inverse of debt ratio. A higher debt ratio would imply a lower proprietary ratio and vice versa. Hence this ratio does not reveal any new information.
Proprietary Ratio = Total Equity / Debt + Equity
The proprietary ratio is the inverse of debt ratio. It is a part to whole comparison. The proprietary ratio measures the amount of funds that investors have contributed towards the capital of a firm in relation to the total capital that is required by the firm to conduct operations.
On the other hand, if investors are from the old school of thought, they would prefer to keep the proprietary ratio high. This ensures less leverage and more stable returns to the shareholders.
Your email address will not be published. Required fields are marked *
