Bond Ratio

A bond ratio is one of the most important ratios in accounting and express the leverage associated with the issuer of the bond. In other words bond ratio can be defined as the percentage of the capitalization of a company that is represented by the bonds issued by the company. In order to calculate this ratio the total bond value of that financial period is divided by the same figure of bond value along with adding all the other equities. Bond ratio is the measure of the leverage of a company. If the bind ratio of a company is low it represents that the company don’t owe much debt and is non-risky for the investors or shareholders. On the other hand the high value of bond ratio indicates that a company is risky for the investors.

Bond ratio of a firm can also be defined as a proportion of long term financing of a company that is represented by the long term debt of that particular company. The average figure of the bond ratio is 33 percent and every bond ratio above that figure shows that company has high leverage. However this formula of 33 percent is an exception for utility companies that have generally a high bond ratio. Formula of bond ratio can be described as under:-

Bond Ratio = Value of Bonds due within a financial year x 100 / ( Value of Bonds due within a financial year +Total Equity Capital)