January 9, 2009, Newsletter Issue #88: What is a Financial Leverage Formula?
Tip of the Week
There are several financial leverage formulas, but the most popular is known as the Debt to Equity formula. It is calculated by adding a company's short term and long term debt, and dividing it by its total shareholders equity.
An acceptable ratio is 2 to 1, and anything higher shows the company is at risk.
Forex trading, on the other hand, can allow leverage ratios of up to 400 to 1 - which illustrates the risk inherent in these markets.
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Thank you for your interest and good luck!
Forex Club, New York
