Graphic: India Inc is coming out of the woods

The debt-to-equity ratio of BSE 500 companies has hit a six-year low and the interest coverage ratio is seeing year-on-year improvement for the first time in the past six years.
 
The debt-to-equity ratio (the lower the better) is arrived at by dividing a company’s outstanding liabilities by its equity share capital, and helps in understanding its financial leverage. The interest coverage ratio (the higher the better), calculated by dividing a company’s earnings before interest and taxes (EBIT) by interest expenses, determines its ability to repay debt.
 
The debt-to-equity ratio of BSE 500 universe (excluding financial stocks) has declined from 0.93 times in FY16 to 0.79 times in FY17. The interest coverage ratio has improved to 5.4 times in FY17 from 4.9 times a year ago, the data compiled by Deutsche Bank showed. “Balance sheets appear to be improving fast, financing costs have declined sharply and a multitude of factors have turned highly conducive for additional and faster paced deleveraging,” says Abhay Laijawala, managing director and head of research, India, Deutsche Bank.
 
High financial leverage had impacted the private sector’s expansion plans, impacting capacity creation and earnings.