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Ratios obviously play an important role in the assessment of listed companies and sectors: they tell not only how companies and sectors compare but also how sound they are.
Healthy ratios naturally create confidence.
For example, analysts look at the ratio of equity to the capital structure and long-term debt as a percentage of total capital, since those debt percentages tell a great deal about the chances of survival and the growth potential of the groups concerned.
Confidence boost
When the percentage of share capital to total capital is looked at it again becomes clear how much sectors differ.
Take the solid ratio, such as the gold mining industry’s 82.9% and the 7.4% for banks and 14.4% for pharmaceuticals and biotechnology, and the large differences in the ratios can’t be overlooked.
However, the DNAs of those sectors differ substantially and, consequently, we should rather look at the huge loss in the individual sectors compared with those of others over the same period, preferably a number of years.
For example, the gradual weakening of the ratio of equity to total capital in sectors such as vehicles and spares since 2005 is noticeable, though 53.9% means equity is still more than half the total capital.
But with travel and recreation it’s fallen drastically from 2005’s 48.7% to 15% last year.
Industrial metals and mining’s 7.7% compared with 62.4% four years ago is another example.
Movers and shakers
Life insurance is one of the sectors in which the ratio improved sharply: in 2005 it was just 5% and in the latest survey it was 47.5%.
If you judge a sector’s welfare on the basis of long-term debt as a percentage of total capital, the gold mining sector again looks good with its 6.2%.
That compares against 61.3% for industrial metals and mining.
In several other sectors – such as vehicles and spares, construction and material, food suppliers and even software and computer services – the long-term debt to total capital is also less than 10%.
Though life insurance still stands at 33.8%, it compares well with the 73.4% of only three years’ earlier.
The media’s debt position also looks much better at 19.2% than the 94% of 2001 – by far the highest for all sectors at that stage.
For a fuller picture, the short-term debt as a percentage of total capital can also be assessed.
Here, the ratio for around 50% of the sectors is less than 10%.
(The capital composition of banks and financial institutions is completely different, which explains the more than 60%. That again shows tennis balls can’t be compared with soccer balls.)
- Finweek
Healthy ratios naturally create confidence.
For example, analysts look at the ratio of equity to the capital structure and long-term debt as a percentage of total capital, since those debt percentages tell a great deal about the chances of survival and the growth potential of the groups concerned.
Confidence boost
When the percentage of share capital to total capital is looked at it again becomes clear how much sectors differ.
Take the solid ratio, such as the gold mining industry’s 82.9% and the 7.4% for banks and 14.4% for pharmaceuticals and biotechnology, and the large differences in the ratios can’t be overlooked.
However, the DNAs of those sectors differ substantially and, consequently, we should rather look at the huge loss in the individual sectors compared with those of others over the same period, preferably a number of years.
For example, the gradual weakening of the ratio of equity to total capital in sectors such as vehicles and spares since 2005 is noticeable, though 53.9% means equity is still more than half the total capital.
But with travel and recreation it’s fallen drastically from 2005’s 48.7% to 15% last year.
Industrial metals and mining’s 7.7% compared with 62.4% four years ago is another example.
Movers and shakers
Life insurance is one of the sectors in which the ratio improved sharply: in 2005 it was just 5% and in the latest survey it was 47.5%.
If you judge a sector’s welfare on the basis of long-term debt as a percentage of total capital, the gold mining sector again looks good with its 6.2%.
That compares against 61.3% for industrial metals and mining.
In several other sectors – such as vehicles and spares, construction and material, food suppliers and even software and computer services – the long-term debt to total capital is also less than 10%.
Though life insurance still stands at 33.8%, it compares well with the 73.4% of only three years’ earlier.
The media’s debt position also looks much better at 19.2% than the 94% of 2001 – by far the highest for all sectors at that stage.
For a fuller picture, the short-term debt as a percentage of total capital can also be assessed.
Here, the ratio for around 50% of the sectors is less than 10%.
(The capital composition of banks and financial institutions is completely different, which explains the more than 60%. That again shows tennis balls can’t be compared with soccer balls.)
- Finweek
