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Debt ratio

The debt ratio indicates how leveraged a business is. It analyses a company’s assets and liabilities and provides information on the company’s debt situation. It is usually desirable to have a ratio that is less than one. Companies in the capital-intensive sector, on the other hand, may have a smaller ratio. As a result, peer-to-peer comparison may be the best option.

The debt ratio is calculated using the following formula:

Debt ratio = Total debt / Total assets

Here are 3 highly leveraged companies with high debt to equity ratio

Adani Power

In India, Adani Power Limited generates and transmits electricity through long-term power purchase agreements and on a commercial basis. As of March 2021, the company’s total debt was Rs 650,263 m. During the same time period, its net worth was Rs 4,976 million.

The debt to equity (D/E) ratio is 131 when total debt is divided by net worth. The higher the ratio, the more debt a company has in comparison to its equity. An excessively high percentage can cause troubles in your small organisation.

The debt load of Adani’s six companies is quite high, which is also a cause of worry for investors. is. Investors will be watching to see how much debt Gautam Adani can cut in the coming days.

Tata Communications

As of March 31, 2021, Tata Communication‘s total debt was Rs 99,585 million. During the same time period, the company’s total equity was Rs 1,155 million.

When we divide the entire debt by total equity, we get an 86 D/E ratio.

The profit and cash flow of the Tata group companies improved in the fiscal year 2021. Tata Communications’ debt was $98.1 billion at the end of March 2021, down from $108.1 billion a year earlier. On the other hand, it has $23.2 billion in cash, resulting in a net debt of $74.9 billion.

Cholamandalam Financial Holdings

As of March 31, 2021, Cholamandalam Financial Holdings‘ total debt was Rs 637,972 million. During the same time period, the company’s total equity was Rs 53,859 million. When we divide the entire debt by total equity, we get an 11.8 D/E ratio.

Only 2.7 percent of trading sessions in the last 16 years had intraday gains of more than 5%. The stock returned 13.88 percent over three years, compared to 49.42 percent for the Nifty Midcap 100.

Conclusion

Banks and financial institutions are not included in the above list because they tend to have higher debt levels because they borrow funds to lend. If we do add them, though, the list will become bloated.

Maintaining a low ratio would also indicate that businesses are not making use of the capital they have available for investment. This might make the corporation vulnerable to a leveraged buyout. Varying industries have different debt-to-equity ratios that are considered “safe” or “normal.” When estimating the relevance of the ratio, take into account industry-specific trends.

It’s crucial to figure out what to include in the debt-to-equity equation’s liabilities section. Some businesses choose to integrate short- and long-term debt, while others prefer to assess each separately. This is significant because the ratio does not indicate when debts must be paid on its own. When the bulk of loans are long-term, a high debt-to-equity ratio is less concerning than when debt payments are due soon.

How Crisil ranks Equity Mutual Funds?

Crisil ranks these mutual funds based on various parameters.

1) Mean return and volatility

Mean return and volatility are considered as separate parameters across all categories. Mean return is the average of daily returns based on the scheme’s NAV for the period under analysis and volatility is the standard deviation of these returns.

2) Exposure to sensitive sectors

In case of debt schemes, industry concentration is analysed for exposure to sensitive sectors which are arrived based on Industry Risk Score (IRS) for various sectors. Crisil’s assessment of IRS quantifies the credit risk associated with an industry on a uniform scale to ensure comparability across industries.

3) Liquidity

It measures the ease with which a portfolio can be liquidated. The lower the score, the better. In case of equities, it measures the number of days to liquidate the portfolio. Liquidity is calculated by taking the average portfolio liquidity score of the past three months

4) Asset quality

Asset quality measures the probability of default by the issuer of a debt security to honour the debt obligation in time.

5) Tracking error This is used only for index schemes. The tracking error is an estimation of the variability in a scheme’s performance vis-à-vis the index that it tracks. The lower the tracking error, the better.

6. Count of Negative Returns The count of negative returns is used as parameter in arbitrage funds to capture downside risk of the funds

List of 5-star rated mutual funds across categories to invest in

Our take on SIPs

The Sensex at the moment is at 58,000 points and according to reports, the Sensex is trading at 18% premium to long term averages. Against this backdrop it is best to invest through Systematic Investment Plans. We suggest that your SIP amount needs to be small, given where the markets are. In case the markets fall, you can aggressively increase your Systematic Investment Plans amount.

For the time being we suggest that investor invest only small amounts, so risks are hedged to an extent.

Disclaimer:

The mutual funds mentioned in this story are taken from the ratings of CRISIL. Please do consult a professional advisor before you invest in mutual funds. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and authors do not accept culpability for losses and/or damages arising based on information in the article. Caution needs to be exercised as mutual funds are subject to risks associated with the stock markets.

The Ministry of Finance has now approved the contribution of 14% employer’s share to NPS account of CAB or Central Automonous Bodies’ employees. Vide a notification dated 31st January 2019, the centre had enhanced the employer’s share of contribution for centre’s NPS subscribers from 10% to 14%. Nonetheless, as CAB employees are not central government employees, 14% employer’s share ruling did not become applicable for them automatically.

CABs are dependent financially on grant-in-aid from the centre. Now any such increase in the employer’s contribution would result in budgetary implication and that needs approval from the centre. There was noticed that without prior approval from the finance ministry, the employer’s contribution was increased to 14% of pay and DA in respect of a number of CABs.

The Government was informed that “such internal and suo-moto decisions by the CABs/ Administrative Ministries are contrary to the Delegation of Financial Powers and tantamount to unauthorized expenditure.”

“The issue has further been examined by this Department and taking into consideration all the factors, it has been decided that the notification dated 31.01.2019 may be extended to the employees of Central Autonomous Bodies,” Department of Expenditure, Ministry of Finance said in an Office Memorandum dated 26th August 2021.

“The date of effect will be same as applicable in case of Central Government employees i.e. 01.04.2019. The administrative Ministry/ Departments are directed to ensure that while implementing the enhanced share of contribution among the autonomous bodies, the financial implications shall be borne by the Government in the same manner, as was decided to be borne while implementing the pay revision benefits to employees of autonomous bodies in terms of the 7th CPC recommendation as enumerated vide this Department’s order,” the Office Memorandum further said.

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