How to determine debt capacity of a company?

dorey1016 · Apprentice Joined: 09 Jul 2008 Posts: 3

I have recently started thinking about opening a firm. I look forward to the profits, but I am also aware that I will have some debts, so there are still things I want to know. Most specifically, I would like to know more about how to determine debt capacity of a company. If anyone could help me, that would be great. Thanks in advance.

charles · Apprentice Joined: 02 Jun 2007 Posts: 6

When you are running any kind of business, you have both certain assets, gained from profits you made, but also expenses, too. Now, the debt capacity is determined by a current ratio. It indicates the degree in which you can pay your debts termed for a short period, which then gives you pretty good picture just where is your money going, and how much you should maybe cut your costs. It is calculated when you take your assets and divide with them your liabilities. The ideal measure of the two is 2:1. I hope you find the info helpful.