Investors are leaving highly-leveraged companies amid worries of corporate defaults. Among BSE 500 firms, shares of those with debt-to-equity ratio of above one have fallen an average of 15 per cent this year.
In comparison, the average share price fall for companies with debt-to-equity ratio of less than one is 10 per cent. Debt-to-equity ratio is calculated by dividing a company’s total liabilities by its shareholder equity. It is a measure of the degree to which a company is financing its operations through debt versus wholly-owned funds.
The companies whose share prices have been hit by high leverage include Bombay Dyeing, TVS