1. Accessing Debt Capacity
Now, as we discussed earlier, as companies become more mature, they have
more access to debt capital. But if we want to assess the debt
capacity of a company, we can look at three categories of measures,
general measures, balance sheet measures and cash flow measures.
So, first of all, some general measures to assess that capacity could be
the level of EBITDA, which is earnings before interest, taxes, depreciation
and amortization. You can also look at the volatility and the stability
of the EBITDA, the capital expenditure and also the cyclically risk or the
other competitors operating in the same industry. If we shift our focus
to look at the balance sheet there we can measure debt to equity,
debt to capital, and debt to assets. And finally, cash flow measures are
also used, and often we can use metrics like total debt to EBITDA,
senior debt to EBITDA or net debt to EBITDA,
they can also look at EBITDA minus CapEx to interest ratios.
2. Let's practice!