But what if I then told you that John also only has $50,000 cash in the bank whereas Jane has $2 million cash in the bank?
Debt to equity The ratio compares the level of a company's debt on its sheet to the amount of equity.
For example, if a company has assets worth $3 million and liabilities worth $1 million, shareholder equity equals $2 million ($3 million – $1 million) and debt to equity equals 0.5x ($1 million / $2 million).
Debt service coverage ratio Since we just mentioned the importance of being able to service debt, let's consider a ratio that provides insight into that, the debt service coverage ratio.
To do this, we use a metric such as operating income and compare it to the company's debt service requirement, meaning all principal and interest payments due in the next year.
Persons:
Jim Cramer, Gail, John, Jane, let's, Eli Lilly, it's, Lilly, Cramer's, Jim
Organizations:
Procter, Gamble, Honeywell, Cramer's Charitable, CNBC