Effective Debt ratio

 

The EDR ("effective leverage ratio") is a pillar of the XBRL Data Analytics Engine because it can provide to the community of creditors either vertically or horizontal an indicator that express the real level of financial indebtedness of the company. 

The story shows that group inter-companys groups and parent company uses shareholding financing to finance the business activity of the enterprise by getting bear-loan financing agreements  internally and disclosing to third parties of creditors a certain level of indebtedness.

The effective debt-ratio differently from the usual debt ratio is a debt-ratio-net-of-shareholders-financing that consider the indebtdness net of shareholders' financing based with the theory that such resources do not belong to the company itself and therefore in tsubstance belong to shareholders equity in a different formality.

 

TOTAL LIABILITIES - SHAREHOLDERS' FINANCING / SHAREHOLDERS EQUITY - DIVIDENDS

 

The positive of using such an indicator is that it is very useful for the community of third party creditors that can be informed over the effective company financial risk when using the EDR.

For instance third parties suppliers of goods or financial resources can price differently a company when using the EDR because aware that a slice of the total liabilities are already a potential of equity.

The EDR indicator measures the leverage and therefore the financial risk providing a value in percentage terms by capitalizing on the financing from shareholders. The value of the EDR is given by the ratio of the total means of third parties net of the shareholder financing (total liabilities - shareholder financing) and the venture capital (net equity-receivables to shareholders-dividends).  

 

UNIGIRO is provider of Benchmark Key Performance Indicators 

MONITORING ENTERPRISE CREDIT RISK: we can provide a Smart XBRL Data Analytics Engine Toolkit for Financial Risk Analysis to let Creditors and Investors monitoring company's creditworthiness and financial sustainability

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