Here’s a simple, conservative way to calculate how leveraged a company is.
Divide the company’s total debt (TD; short & long-term) by the company’s tangible common equity (TCE; equity minus preferred shares minus all goodwill & intangible assets).
I’ve found this calculation to be more useful in determining how leveraged a company is than the debt/equity or assets/equity calculations: the latter include intangibles and goodwill which I find hard to calculate an intrinsic value for.
Or you can calculate leverage all 3 ways and see if there are any discrepancies.
If the TD/TCE ratio is significantly higher than the other 2 calculations you may want to spend some time trying to determine the intrinsic value of the company’s goodwill & intangible assets: the company may be more leveraged than you think.
