The debt-equity ratio, is one of the key metrics which is used to get a snapshot of the riskiness of a business. The fixed charges in terms of servicing high debt obligations can be extremely burdensome, especially when business is down. History is full of examples of otherwise good businesses getting overwhelmed by the excessive weight.
The chart below shows that companies in India have made the smart move of taking advantage of the upturn in the business cycle to increase the amount of equity financing in their business, thus lowering their D/E ratios from a high of 1.4 at the end of FY03 to 0.8 at the end of FY09. Though FY09 has seen a slight increase when compared to FY08, the long term trend should thus indeed inspire confidence in FIIs.
The chart below shows that companies in India have made the smart move of taking advantage of the upturn in the business cycle to increase the amount of equity financing in their business, thus lowering their D/E ratios from a high of 1.4 at the end of FY03 to 0.8 at the end of FY09. Though FY09 has seen a slight increase when compared to FY08, the long term trend should thus indeed inspire confidence in FIIs.
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