Finance Formulas / July 27, 2018 / Kenley Hopper
DFL, therefore, is invaluable in helping a company assess the amount of debt or financial leverage it should opt for in its capital structure. If operating income is relatively stable, then earnings and EPS would be stable as well, and the company can afford to take on a significant amount of debt. However, if the company operates in a sector where operating income is quite volatile, it may be prudent to limit debt to easily manageable levels.
Total costs are made up of fixed costs, those costs that are required for production but do not change based on output, and variable costs, those costs that increase or decrease as output increases or decreases. For example, if an organization manufactures desktop computer screens, the glass screens, plastic casings, electrical boards and wires, and screws are all variable costs. The cost of the facility they are made in and the equipment used to assemble the monitors are fixed costs. It doesn't matter if one monitor is made or 100, the cost of the facility and equipment will remain fixed.
In corporate finance, the Debt-Service Coverage Ratio (DSCR) is a measure of the cash flow available to pay current debt obligations. The ratio states net operating income as a multiple of debt obligations due within one year, including interest, principal, sinking-fund and lease payments.
If you have credit cards or bank loans for your home, you pay interest (or a finance charge) on that money at a specific percentage over the course of the year. This is called APR, or annual percentage rate. Calculating your APR on your credit cards takes only a few minutes if you know some key factors and a little algebra. The APR on mortgage loans, however, is different from the simple interest rate because of additional charges or fees to you for securing your loan.
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