Provides a measure of strength of the balance sheet. Just as someone earning £100,000 per year would be more comfortable with a £500,000 mortgage than someone on £20,000, a business with a small amount of debt as a proportion of earnings would be more comfortable than vice versa.
= (Debt-cash)/Earnings before interest, tax, depreciation and amortisation
In theory, the definitions of an investment or an expense seem quite clear cut. An investment, so the theory goes, is spending which creates an asset which will help produce profits over a number of…
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