Module 4 ยท Valuation and Ratios
Debt/equity shows how leveraged a company is; margins show how much profit it keeps from sales.
The debt-to-equity ratio compares a company's debt to its equity. A high ratio means heavy borrowing, which can amplify gains but also losses and default risk.
Margins show how much of each rupee of sales becomes profit. Gross, operating (EBITDA) and net margins each reveal a different layer of cost.
Rising margins often signal pricing power or efficiency; falling margins can signal rising costs or competition.
Example: ITC
ITC enjoys high margins because of its dominant cigarette franchise and pricing power. A retailer like DMart runs on much thinner margins but makes it up in volume.
A high debt-to-equity ratio means a company is:
Why might a company with thin margins still be a great business? What makes up for it?