Why Do Corporations Get Away With Tax Avoidance ?
Some of the well-paid engineers in companies like Amazon pay about 45% of their income in taxes. They do so every year, and it seems unfair to them why the company that employs them gets away with paying about 1% taxes. Warren Buffet once famously remarked that he pays a smaller tax rate as compared […]
Estimating Project Cash Flows: Part 1
Prima facie, capital budgeting may seem like a very simple task. After all, it has just 3 steps. The first is to find the cash flows, the second is to find the appropriate discount rate that represents the time value and riskiness of those cash flows and the third step is to use both these […]
The Inherent Conflict of Interest in Interest Rates Determination
The global financial system is not perfect by any means. However, most of the imperfections seem to be minor. As a whole, individuals and corporations feel safe transacting and investing based on the rules defined in the current system. This is possible because the stalwarts of modern day finance have been ignoring the elephant in […]
Third-Party Risks in an Infrastructure Project
In the previous few articles, we have come across the various types of risk which are present in an infrastructure project. We have discussed the risk of cost overruns as well as the risks of revenue delays and everything in between. However, all the risks we discussed were directly applicable to the infrastructure company or […]
Introduction to Turnover Ratios
Turnover ratios (also known as efficiency ratios) are a very important class of ratios. These ratios are not only used by financial personnel but also by the people in charge of operations. However, we are going to consider these ratios from the point of view of outside investors. This is because judgments have to be […]
The proprietary ratio is not amongst the commonly used ratios. Very few analysts prescribe its usage. This is because in reality it is the inverse of debt ratio. A higher debt ratio would imply a lower proprietary ratio and vice versa. Hence this ratio does not reveal any new information.
Proprietary Ratio = Total Equity / Debt + Equity
The proprietary ratio is the inverse of debt ratio. It is a part to whole comparison. The proprietary ratio measures the amount of funds that investors have contributed towards the capital of a firm in relation to the total capital that is required by the firm to conduct operations.
On the other hand, if investors are from the old school of thought, they would prefer to keep the proprietary ratio high. This ensures less leverage and more stable returns to the shareholders.
Your email address will not be published. Required fields are marked *
