Cross Border Credit Reporting
The geographical boundaries drawn by nation states are blurring in the 21st century. In many parts of the world, free movement of goods, services, and even personnel have become a norm. However, strangely, the concept of credit and loans is still dependent upon national boundaries. The H1B visa system of America is a testimony to […]
Government Sponsored Entities
Money market securities are generally issued by firms that have a very strong credit rating. This is because investors do not want their investments to be volatile when they invest in money markets. Hence, they prefer to buy securities only from companies that have a strong credit rating. The government is the most preferable issuer […]
Next Day Funding – Meaning and its Benefits
In the previous article, we have already studied how commercial banks help in providing point-of-sale services to their corporate customers. We have also studied how point-of-sale systems have become strategically important for corporations. However, they are some pain points in the point-of-service system as well. Commercial banks provide another service called next-day funding in order […]
Introduction to Profitability Ratios
The ultimate aim of all business is to generate profit. That is what the investors invest for, management plans for and employees execute for. Profitability Needs Context Two companies may be generating the exact same amount of rupee profits, however that does not mean that they are equally profitable. This is because profit is an […]
Types of Hedge Funds
Hedge funds are simply funds with high leverage and no regulation. They have come into existence in the past couple of decades or so. However, a lot of fund managers have used different strategies and different asset classes. The result is a proliferation of the types of hedge funds. The modern investor therefore has a […]
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.
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