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What are the Leverage Ratios and How Banks and Companies Utilized Them?

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Leverage ratios are financial ratios used to evaluate how much capital is financed through debt and equity. It is used to assess the business’s ability to pay off its debt, especially if it wants additional capital from borrowing. High leverage ratios indicate that a company is mostly funded by debt instead of equity, which can trigger a default if cash flows are not appropriately handled. On the other hand, very low ratios could mean that the business is hesitant to pursue borrowing due to the tight operating margin or can be that it has enough retained earnings to finance expansion or new projects. 

Discussed below are the different types of leverage ratios commonly utilized in assessing the leverage of a company. 

Debt/EBITDA Ratio

The Debt/EBITDA Ratio is used to assess the company’s ability to pay its financial debt or the company’s interest-bearing financial obligations (exclude accounts payables or provisions). For a manufacturing company, a Debt/EBITDA ratio of 2x is the industry standard, which means having a 1.2x ratio could suggest that the company is in an excellent position to acquire debt for additional capital. However, a ratio of 2.5x can give a red light to the banks and other financial institutions, doubting the business capability to handle additional debt. The Debt/EBITDA ratio is computed by dividing the financial debt over EBITDA (Earnings Before Interest, Tax, Depreciation, Amortization). 

Debt/EBITDA Ratio = Financial Debt/EBITDA

Net Debt/EBITDA Ratio

The Net Debt/EBITDA ratio is quite similar to Debt/EBITDA, depending on the financial debt amounts. Cash & cash equivalents are deducted from the debt in computing for the Net Debt/EBITDA ratio, assuming that cash will be used to pay the financial debt. It is then computed by taking the net debt (Financial Debt less Cash & Cash Equivalents) divided by EBITDA. This ratio can be translated as the number of years that the business needs to pay its debt, given that the net debt and EBITDA are constant. For example, let’s take that the company Net Debt/EBITDA ratio is 3.5x, which means that it will take three and a half years to repay the financial debt utilizing the EBITDA.

Net Debt/EBITDA Ratio = (Debt – Cash & Cash Equivalents) / EBITDA

Interest Coverage Ratio

Evaluating the company’s capability to pay the interest debt can be done by looking at the interest coverage ratio. It is computed by taking the EBIT (Earnings Before Interest and Tax) divided by the interest expense. This ratio shows how many times the EBIT covers the interest expense. The higher the ratio, the better it is for the company since the interest expense will not affect much of its earnings. The interest coverage ratio is a leverage ratio to measure its current debt-paying capability and future borrowings. 

Interest Coverage Ratio = EBIT / Interest Expense

Debt Service Coverage Ratio

Debt service coverage ratio (DSCR) is utilized to assess the capability of the business to cover its debt service (Debt Repayment + Interest Payment) by the Free Cash Flow to Firm (FCFF). FCFF is the operating cash flow available after considering the CAPEX, working capital changes, and taxes. It is computed by dividing the Free Cash Flow to Firm over the Debt Repayment + Interest.

Debt Service Coverage Ratio = Free Cash Flow to Firm / (Debt Repayments + Interest)

Debt Ratio

The debt ratio is a leverage ratio used to evaluate how much of the liabilities are financed by debt. It is computed by dividing the total liabilities over the total assets. A low debt ratio suggests that the business is not highly leveraged and mostly financed through equity. The high debt ratio alerts the financers since it makes the company susceptible to financial turmoil and economic risks.

Debt Ratio = Total Liabilities / Total Assets

Debt/Equity Ratio

The debt/equity ratio is used to measure the debt’s percentage out of the total investment. It also evaluates if the shareholders’ equity can cover its interest-bearing debt. The debt/equity ratio is computed by taking the interest-bearing debt, divided by total shareholders’ equity. Using a modest debt to finance the operation can increase returns for the company, given that the cost of debt is lower than the investors’ expected rate of return. 

Debt/Equity Ratio = Interest-Bearing Debt / Equity

A Percentage change calculator can check leverage ratios to be beneficial both for the companies and lenders to evaluate their availability to finance their current financial obligation and further borrowing for business expansion. Healthy leverage ratios are a turn-on for the lenders, given that the other financial ratios and metrics adhere to their standards. Leverage ratios are a valuable add-on to financial analyses for better decision-making.

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Business & Finance

Dubai’s One Za’abeel F&B Scene Unveiled

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Photographed with the adept eyes of Alex Jeffries, The Hotels restaurants, have been unveiled and launched to the world, including Street XO, La Dame De Pic, DuangDy, Qabu and Andaliman.

Discover the Link

A futuristic boulevard floating above the city, The Link is home to four signature restaurants from Michelin-lauded chefs, elevated all-day dining, and Arrazuna, a reimagined gourmet food hall.

Design Team

The link is now officially recognised as the world’s Longest Cantilevered Building. One Za’abeel has been awarded a total of four Guinness World Records now, including the one for the iconic 230-meter long cantilevered skybridge – The Link that joins the two towers of the scheme and spans over a major four-lane highway. Both reputable design companies LW and Social F+B have been involved with the design

Location

No stranger to Hospitality and restaurants and bars photography Alex Jeffries Photography Group were thrilled to be asked to photograph the new F&B venues in the Link, located in the well-known uber new luxury hotel, the One & Only, Za’abeel One, Dubai.

Capturing Architectural Harmony – Interior Design Excellence

Interior photography by Alex Jeffries, a firm favourite, was chosen by many of the leading Architecture, Lighting, and Interior Design companies in Dubai to help them build a portfolio and win awards in local and global competitions.

About Alex

Alex Jeffries is a British Photographer, working and photographing around the region for over fifteen years, qualified with the British Institute of Professional Photography, the Federation of European Professional Photographers and the British Master Photographers Association.

Specialty

Alex specialises in Interior Photography, Architecture and Hotels and Hospitality. Regularly shooting for many of the global brand Hotels that have a footprint in the region, Alex specialises in shooting at the pre-opening stage, in helping launch a new hotel to the market.

What can Alex do for you?

Interior photography by Alex Jeffries – What can Alex do for you? He specialises in helping Interior and Architecture clients build their portfolios and win awards. And with his proven solid experience in the region helping launch to market many of the local and global Hotel brands that demand and expect the highest standards his professional experience ensures you will get the return on investment you need.

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Business & Finance

Unlocking the Power of Customer Reviews for Your Business

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Welcome to our guide on how to get reviews for your business! In today’s digital age, customer reviews play a crucial role in shaping the reputation and success of businesses. In this article, we’ll explore the importance of customer reviews, effective strategies for obtaining them, and common questions businesses have about soliciting feedback from customers.

Understanding the Impact of Reviews

Customer reviews provide valuable insights into the quality of products or services offered by a business. They serve as social proof, helping potential customers make informed purchasing decisions. Positive reviews can enhance credibility, attract new customers, and improve search engine rankings, while negative reviews can damage reputation and deter potential customers.

Key Strategies for Obtaining Reviews

  1. Provide Excellent Customer Experience: Offer exceptional products and services to ensure customer satisfaction and increase the likelihood of receiving positive reviews.
  2. Ask for Reviews: Actively encourage satisfied customers to leave reviews by including a call-to-action on receipts, invoices, or follow-up emails.
  3. Utilize Review Platforms: Create profiles on popular review platforms such as Google My Business, Yelp, Facebook, and industry-specific sites where customers can easily leave reviews.
  4. Offer Incentives: Offer incentives such as discounts, coupons, or loyalty points in exchange for leaving a review, but ensure compliance with platform guidelines.
  5. Make It Easy: Simplify the review process by providing direct links or instructions on how to leave a review on various platforms.

Steps to Obtain Reviews for Your Business

  1. Identify Review Channels: Determine which review platforms are most relevant to your business and where your target audience is likely to search for reviews.
  2. Develop a Review Request Process: Create a standardized process for requesting reviews from customers, including when and how to ask for feedback.
  3. Train Your Staff: Train your employees on the importance of reviews and how to ask customers for feedback in a polite and non-intrusive manner.
  4. Monitor and Respond: Regularly monitor review platforms for new reviews and respond promptly, whether they are positive or negative, to show that you value customer feedback.
  5. Track Performance: Track the number of reviews received, sentiment, and any changes in customer behavior or sales attributable to reviews.

FAQs (Frequently Asked Questions)

  1. Can I ask customers to leave reviews? Yes, it’s acceptable to ask satisfied customers to leave reviews, but be sure to do so in a respectful and non-coercive manner.
  2. Is it ethical to offer incentives for reviews? Offering incentives for reviews is acceptable as long as it complies with platform guidelines and doesn’t influence the content of the review.

Conclusion

In conclusion, obtaining reviews for your business is essential for building trust, credibility, and reputation among customers. By implementing effective strategies and soliciting feedback from satisfied customers, businesses can harness the power of reviews to attract new customers, retain existing ones, and drive long-term success.

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Business & Finance

Unveiling the Power of Online Reviews for Businesses

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Welcome to our guide on leveraging online reviews for businesses! In this article, we’ll explore the significance of online reviews, their impact on businesses, strategies for managing reviews effectively, and common questions businesses have about this crucial aspect of their online presence.

Understanding Online Reviews

Online reviews are feedback provided by customers about products, services, or experiences they’ve had with a business. These reviews are often posted on various platforms such as Google, Yelp, TripAdvisor, and social media channels. They play a vital role in shaping the reputation and credibility of businesses in the digital age.

Importance of Online Reviews

Online reviews can significantly influence consumers’ purchasing decisions. Positive reviews build trust and credibility, attract new customers, and improve search engine rankings. Conversely, negative reviews can damage a business’s reputation and deter potential customers from engaging with the brand.

Key Strategies for Managing Online Reviews

  1. Monitor Review Platforms: Regularly monitor review platforms where your business is listed to stay informed about customer feedback.
  2. Respond Promptly: Respond promptly to both positive and negative reviews to show customers that their feedback is valued and to address any concerns.
  3. Encourage Reviews: Encourage satisfied customers to leave positive reviews by providing excellent service and making the review process easy and accessible.
  4. Address Negative Feedback: Address negative feedback professionally and empathetically, offering solutions to rectify any issues and demonstrating a commitment to customer satisfaction.
  5. Showcase Positive Reviews: Showcase positive reviews on your website, social media channels, and marketing materials to build credibility and trust with potential customers.

Steps to Implement Effective Review Management

  1. Claim Your Business Listings: Claim your business listings on review platforms to ensure accuracy and control over the information displayed.
  2. Create a Review Management Strategy: Develop a comprehensive review management strategy that outlines how you will monitor, respond to, and leverage online reviews to benefit your business.
  3. Train Your Team: Train your team members on how to effectively respond to reviews, ensuring consistency in tone and messaging.
  4. Use Review Management Tools: Utilize review management tools and software to streamline the review monitoring and response process.
  5. Analyze and Learn: Analyze review data to identify trends, strengths, and areas for improvement, and use this information to refine your products, services, and customer experience.

FAQs (Frequently Asked Questions)

  1. How do online reviews impact my business’s reputation? Online reviews can significantly impact your business’s reputation, influencing consumer perception, trust, and purchasing decisions.
  2. Can I delete negative reviews? While you can’t delete negative reviews, you can respond to them professionally and address any issues raised to demonstrate your commitment to customer satisfaction.

Conclusion

In conclusion, online reviews are a powerful tool for businesses to build trust, credibility, and reputation in the digital landscape. By effectively managing and leveraging online reviews, businesses can attract new customers, retain existing ones, and ultimately drive success and growth.

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