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*Right Debt*-*to*-*Equity* Ratio. by Tom D. Lewis A debt-to-equity ratio, which is the tot debt of an entity divided by the total equity of that entity, is a bar of the use of leverage or a measure of risk. supplement is the use of other peoples money to make money. In its simplest form, it is borrowing money from someone at a declared interest rate (such as 8%) and then investiture that money in a project that earns a commodious return than this stated rate (such as a 12% return). The debt-to-equity ratio is in like manner a measure of risk since the to a greater extent debt that is used, the greater the risk that the entity skill be forced to make up and go out of business. This is the flake because although equity investors |owners~ will not attempt to put a company out of business, debtors might if the entity fails to make timely interest and/or principal payments. What should a companys debt-to-equity ratio be? My answer has always been: It should be just right. By just right, I mean it should be high enough where the owners of a company receive a truly good return; yet, it should not be so high that the company faces too great a risk. Is this identical analysis true of rural electric cooperatives?

I go to sleep many people in the rural electric pains who feel that this is not true. This article will attempt to deliver the reader that for rural electric cooperatives, the correct debt-to-equity ratio is also one that is just right. The Power of Leverage The use of leverage bottomland be a very profitable and very powerful tool. With many groups, I use a case to demonstrate the power of leverage. A similar case is shown below. look An Investment Opportunity Jack has researched an investment area where he is very certain that he has devised an investment strategy that can make him a good return and a great deal of money. The following information relates to this potential investment: If you neediness to get a full essay, order it on our website: Orderessay

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