Finance Formulas / July 13, 2018 / Cecelia Weiss
The higher the debt ratio, the more leveraged a company is, implying greater financial risk. At the same time, leverage is an important tool that companies use to grow, and many businesses find sustainable uses for debt.
For example, if a company had $150,000 in revenues and $50,000 in explicit costs, its accounting profit would be $100,000. The same company also had $25,000 in implicit, or opportunity costs. Its economic profit would be $75,000.
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