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Optimal Leverage Ratio In Company Management And Application Practices

Table 2: Methods for determining financial leverage

No. Method group Author Formula
I Traditional approach in methods (or ratio of liabilities to equity) Breen and Lerner, Melicher (Booth, Aivazian, Demirguc-Kunt & Maksimovic, 2001) LTD / E = Long-term liabilities / Equity (book value);
Bildersee (Fama & French, 2002) MD / MA = Long-term liabilities / Equity (market value);
Breen and Lerner, Lev and Kunitzky, Melicher and Rush, Pettit and Westerfield TD / E = Total debt / Equity
II Debt to assets ratio (share of debt in total funding sources) Beaver, Kettler, and Scholes; Logue and Merville; Rosenberg and McKibben (Harris & Raviv, 1990) LTD / TA = Long-term liabilities / Total sources *
Thompson TD / TA = Total Debt / Total Sources
Thompson STD / TA = Systematic Cumulative Debt / Total Sources
Thompson (Singhania & Seth, 2010) VTD / TA = Total Debt Variance / Total Sources
III The ratio of long-term liabilities to the amount owed plus market capitalization Doukas and Pantzalis (Doukas & Pantzalis, 2003); Mittoo and Zhang LTD / ТD + MV = Long-term liabilities / Total debt + Market capitalization
Lee and Kwok; Burgman (Burgman, 1996); Chen et al; Chkir and Cosset (Chkir & Cosset, 2001); Shumiakhtar LTD / LTD + MV = Long-term liabilities / Long-term liabilities + Market capitalization
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