1. Chapter 14
Financing with Debt

2. Financial Statement Items Covered
Balance Sheet
Income Statement
Statement of Cash Flows
Long-Term Assets
Leased assets
Current Liabilities
Accounts payable
Accrued operating liabilities
Short-term debt
Current potion of long-term debt
Long-Term Liabilities
Mortgage payable
Bonds Payable (plus premium or minus discount)
Capital lease liability
Interest expense
Operating
Cash paid for interest
Financing
Cash received (paid) from issuance (repayment) of long-term debt

3. Debt Financing: Conceptual Issues

4. Liabilities
Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.
Likelihood is high; liabilities impact the future
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

5. Liabilities
Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.
Includes legal, moral, social, and implied obligations
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

6. Liabilities
Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.
the obligation can involve either type of future event
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

7. Liabilities
Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.
have already happened
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

8. Liabilities
Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

9. Classification of Liabilities
Monetary liabilities are obligations payable in a fixed sum of money
Examples: accounts payable, accruals
Nonmonetary liabilities are obligations to provide fixed amounts of goods and services
Example: revenues received in advance of providing a service
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

10. Classification of Liabilities
Current liabilities are obligations expected to be satisfied within one year of the balance sheet date
Examples: accounts payable, accrued liabilities, current maturity of mortgage
Long-term liabilities are obligations expected to be satisfied after one year from the balance sheet date
Examples: bonds payable, remainder of mortgage
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

11. Current Ratio Measures the ability to repay debt in the short run
Historically, less than 2:1 indicative of liquidity concerns
Now, due to advances in technology, frequently less than 1:1
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

12. Measurement of Liabilities
The existence of liabilities
Contingent liabilities are recognized if
Probable and
Can be reasonably estimated
The amount of liabilities
Sometimes must be estimated (example: warranty liability)
Current liabilities are shown at face value
Long-term liabilities are shown at present value (what it would cost to completely pay off the obligation today)
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

13. Short-Term Liabilities

14. Short-Term Operating Liabilities
Accounts payable represent a company’s obligation to pay
for goods or services that have been provided
usually within 10 to 60 days
Accrued liabilities include payables for operating activities
Income taxes
Employee wages
Utilities
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

15. Short-Term Debt
Short-term debt refers to interest-bearing debt made to cover temporary shortages in cash
May classify as long-term if (a) ability and (b) intent to refinance
Promissory notes (commercial paper) are formal loans that are issued by a company in exchange for cash
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

16. Lines of Credit
A line of credit is a negotiated arrangement with a lender in which the terms are agreed to prior to the need for borrowing
The line of credit itself is not a liability
A formal liability is created when the line of credit is used
Long-term or short-term depends on repayment requirements
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

17. Present Value of Long-Term Debt

18. Long-Term Debt Issues Choose Issue Pay Account Retire
the method of financing
the debt
interest
for the specific aspects of the type of debt
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

19. The Importance of Present Value
Present value concepts must be used to properly value long-term loans where cash outflows extend far into the future
Loan amortization
Each loan payment includes interest expense as well as a reduction in the principal of the loan
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

20. Mortgages
A loan backed by an asset whose title is pledged to the lender
A mortgage is payable in equal installments (an annuity)
Each payment is comprised of interest and principal
Interest is charged on the declining principal balance
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

21. Mortgages
The mortgage obligation is reported on the balance sheet at its present value
Principle amounts due in the next twelve months are reported as a current liability
The balance of the principle is reported as a long-term liability
A secured loan is backed by certain assets as collateral
The interest cost is lower on this loan due to the reduced risk to the lender
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

22. Bonds

23. Definition of a Bond
A bond is a written agreement between a borrower and a lender in which the borrower agrees to
Repay a stated sum on a future date
Make periodic interest payments at specified dates
After issuance, bonds may be publicly traded on a bond exchange
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

24. Features of Bonds
The bond certificate details the particular features of a bond issue:
Denomination
Maturity date
Stated interest rate
Interest payment dates
Other terms agreed to by the parties
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

25. Bond Denomination The denomination is also called the
Principal
Face value
Maturity value
Par value
The amount (usually $1,000) must be repaid to the lender
Interest payment calculations are based on this amount
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

26. Bond Maturity Date
The principal of the bonds is repaid on the maturity date
Bond maturity may range from 5 to more than 30 years
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

27. Bond Stated Interest Rate
Also referred to as face rate or coupon rate
Is specified on the bond at issuance
Is set as close as possible to the market rate
established by the money market
depends on the prevailing interest rates and perceived risk of the company
Remains constant over the life of the bond
Is applied to the face of the bond to calculate interest payments to bondholders
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

28. Bond Interest Payment Dates
Most bonds pay interest semiannually
Stated interest rate is always an annual amount
Example: 12% paid semiannually pays 6% every six months
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

29. Zero-Coupon Bonds Do not pay interest periodically
Are issued at a deep discount
The discount represents interest to be earned over the life of the bond
Are a popular form of issue with governmental units
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

30. Types of Bonds Term Bonds Serial Bonds
all principle is due on a single date
Serial Bonds
bonds are payable at specific intervals
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

31. Types of Bonds Unsecured bonds (debentures)
issued without any security to back them
Secured bonds (mortgage bonds)
secured by the borrower’s collateral or specified assets
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

32. Types of Bonds Convertible bonds Callable bonds
may at some future, specified date be exchanged for, or converted into, the company’s common stock
Callable bonds
allow the borrower, or issuer, to call or redeem the bonds prior to their maturity
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

33. Bond Listing from the Wall Street Journal
Maturity Date
Name of Issuer
$75 million volume
Stated Interest Rate
Yield (Effective) Rate
Traded at a premium “Quote”
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

34. Determination of Bond Prices
Stated Interest Rate
Prevailing Market Rate
Bond Price
Length of Time to Maturity
Perceived Risk of Investment
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

35. Bond Price Quotations Quote Percent of Face Price Paid Per $1,000 Bond
Bond Is Selling at
100
100%
$1,000
Par
97½
97.5%
975
Discount
104
104%
1,040
Premium
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

36. Bond Issuance Scenarios
Face Rate
12%
Face Amount
$100,000
Market Int Rate
10%
14%
Rate Comparison
Face% > Mkt%
Face% = Mkt%
Face% < Mkt%
Effect on trading price
Raise price above face (premium)
Trade at face (par)
Lower price below face (discount)
Annual Cash Int
$12,000
Repay at maturity
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

37. Investing in Bonds
Assuming the risk and maturity date are equal among alternatives, investors want to invest an amount which will, over time, earn the prevailing market interest rate at the date of purchase
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

38. Illustration: Investing in Bonds
Assume an investor is considering two investment alternatives when the market rate of interest is 14%:
Investment A: $1,000, 5-year, 12% semiannual term bond
Investment B: $1,000, 5-year, 14% semiannual term bond
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

39. Comparison of Investment Alternatives
“A” 12% stated rate earns 12%
Invest $1,000?
Investor
Choose higher return 
“B” 14% stated rate earns 14%
Invest $1,000?

40. Bond “A” Cash Flow Timeline
$1,000 12% semiannual 5-year bond sold to yield 14%
($1,000 × 12% × 6/12 = 60 semiannual interest)
Present Value Calculation:
Present value of principal
$1,000 × (present value of $1 factor for 10 periods at 7%) $508
Present value of 10 semi-annual interest payments
$60 × (present value of an annuity factor for 10 periods at 7%) 421
Present value = price of the 12% bond in the 14% market $930
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

41. Bond “B” Cash Flow Timeline
$1,000 14% semiannual 5-year bond sold to yield 14%
($1,000 × 14% × 6/12 = 70 semiannual interest)
Present Value Calculation:
Present value of principal
$1,000 × (present value of $1 factor for 10 periods at 7%) $508
Present value of 10 semi-annual interest payments
$70 × (present value of an annuity factor for 10 periods at 7%) 492
Present value = price of the 14% bond in the 14% market $1,000
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

42. Comparison of Investment Alternatives
“A” 12% stated rate earns 12%
Invest $1,000?
Investor
Choose higher return 
“B” 14% stated rate earns 14%
Invest $1,000?
Invest $930?
“A” 12% stated rate earns 14%
Present value 
Returns are equal
Investor
“B” 14% stated rate earns 14%
Invest $1,000?

43. Discount on Bond “A”
Face Value of Bond $1,000
Present Value of Cash Inflows
Discount on Bond $ 70
The investor is willing to pay (and the issuer willing to accept) $930 for the 12% bond so that it will yield 14%
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

44. Illustration: Bond Issued at a Premium
100 $1,000, 5-year 12% semiannual bonds sold when market is 10%
(100 × $1,000 × 12% × 6/12 = 6,000 semiannual interest)
Present Value Calculation:
Present value of principal
$100,000 × (present value of $1 factor for 10 periods at 5%) $61,391
Present value of 10 semi-annual interest payments
$6,000 × (present value of an annuity factor for 10 periods at 5%) 46,330
Present value = price of the 12% bond in the 10% market $107,721
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

45. Illustration: Bond Premium
Present Value of Cash Inflows $107,721
Face Value of Bond ,000
Premium on Bond $ 7,721
The investor is willing to pay (and the issuer willing to accept) $107,721 for the 12% bonds so that they will yield 10%
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

46. Accounting for the Issuance of Bonds

47. Bonds Issued at Par (Face) Value
On January 1, 2006, $100,000 of 5-year, 12%, term bonds with semiannual interest payments are issued at par
Assets
Liabil
Equity
Revenue
Expense
Cash
+100,000
Bond Pay
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

48. Bonds Issued at Par (Face) Value
On June 30 the first semi-annual interest payment is due to bondholders. ($100,000 × 6%)
Assets
Liabil
Equity
Revenue
Expense
Cash
-6,000
Int Exp
+6,000
This is repeated every December 31 and June 30 for the five year term of the bond.
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

49. Bonds Issued at a Discount
On January 1, 2006, $100,000 of 5-year, 12%, term bonds with semiannual (Jan 1 & July 1) interest payments are issued when the market interest rate is 14%
The effective rate of interest at issuance (14%) is used to determine the
Discounted cash flows associated with the bond issue
Interest expense associated with the bond issue
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

50. Bonds Issued at a Discount
Present Value Calculation:
Present value of principal
$100,000 × (present value of $1 factor for 10 periods at 7%) $ 50,835
Present value of 10 semi-annual interest payments
$6,000 × (present value of an annuity factor for 10 periods at 7%) 42,141
Present value = price of the 12% bonds in the 14% market $ 92,976
Face Value 100,000
Discount on Bond Payable $7,024
Assets
Liabil
Equity
Revenue
Expense
Cash
+92,976
Bond Pay
+100,000
Disc on BP
- 7,024
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

51. Balance Sheet Presentation: Bonds Issued at a Discount
Bonds Payable $100,000
Less: Discount on Bonds Pay (7,024)
Carrying Value $92,976
Contra Liability Account
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

52. Bonds Issued at a Premium
On January 1, 2006, $100,000 of 5-year, 12%, term bonds with semiannual (Jan 1 & July 1) interest payments are issued when the market interest rate is 10%
The effective rate of interest at issuance (10%) is used to determine the
Discounted cash flows associated with the bond issue
Interest expense associated with the bond issue
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

53. Bonds Issued at a Premium
Present Value Calculation:
Present value of principal
$100,000 × (present value of $1 factor for 10 periods at 5%) $ 61,391
Present value of 10 semi-annual interest payments
$6,000 × (present value of an annuity factor for 10 periods at 5%) 46,330
Present value = price of the 12% bonds in the 14% market $ 107,721
Face Value 100,000
Premium on Bond Payable $7,721
Assets
Liabil
Equity
Revenue
Expense
Cash
+107,721
Bond Pay
+100,000
Prem on BP
+ 7,721
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

54. Balance Sheet Presentation: Bonds Issued at a Premium
Bonds Payable $100,000
Plus: Premium on Bonds Pay 7,721
Carrying Value $107,721
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

55. Bond Issuance Summary
Bonds are recorded and recognized in the financial statements at the present value of future cash flows
Interest annuity (face × stated rate × time)
Maturity value
Depending on the relationship between the stated interest rate and the yield rate, bonds are valued at
par value
par value minus a discount
par value plus a premium
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

56. Bonds Subsequent to Issue Nature of the Discount Account
The discount is additional interest
Borrow less than face
Repay face
Amount not borrowed but repaid is
Discount
Additional Interest
Discount is amortized over bond term
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

57. Bond Discount and Bond Interest Expense
Interest expense paid to bondholders:
Face value of bonds $100,000
Semiannual stated interest rate × 6%
Semiannual interest $ 6,000
Number of interest periods × 10
Total cash interest $ 60,000
Discount on issuance ,024
Total interest incurred $ 67,024
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

58. Bond Discount & Bond Interest Expense, View 2
Principal (at maturity) $100,000
Cash interest over life ,000
Total cash paid to bondholders 160,000
Cash received at issuance ,976
Total interest incurred $ 67,024
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

59. Interest Expense for Bond with Discount
First 6-month period
At the end of the five-year life of the bonds:
Face value 100,000
Discount balance
Carrying Value Equals Maturity Value 100,000
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

60. Bonds Subsequent to Issue Nature of the Premium Account
The premium reduces interest
Borrow more than face
Repay face
Amount borrowed but not repaid is
Premium
Reduction in iInterest
Premium is amortized over bond term
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

61. Bond Premium and Bond Interest Expense
Interest expense paid to bondholders:
Face value of bonds $100,000
Semiannual stated interest rate × 6%
Semiannual interest $ 6,000
Number of interest periods × 10
Total cash interest $ 60,000
Premium on issuance ,721
Total interest incurred $ 52,279
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

62. Bond Premium & Bond Interest Expense, View 2
Principal (at maturity) $100,000
Cash interest over life ,000
Total cash paid to bondholders 160,000
Cash received at issuance ,721
Total interest incurred $ 52,279
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

63. Interest Expense for Bond with Premium
Reduction
Bond
Payment
Cash Interest
Interest in
Carrying
Number
Payment
Expense
Premium
Value
Beginning Balance
107,721 1
6,000
5,386
614
107,107 2
6,000
5,355
645
106,462 3
6,000
5,323
677
105,786 4
6,000
5,289
711
105,075 5
6,000
5,254
746
104,329 6
6,000
5,216
784
103,545 7
6,000
5,177
823
102,722 8
6,000
5,136
864
101,858 9
6,000
5,093
907
100,951 10
6,000
5,049
951
100,000
(final interest expense adjusted for rounding)
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

64. Retiring Bonds
When bonds are repaid at maturity, Bonds Payable is decreased and Cash is decreased
Assets
Liabil
Equity
Revenue
Expense
Cash
-100,000
Bond Pay
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

65. Retiring Bonds
A bond sinking fund is a collection of cash and short-term securities that is set aside for repayment of the principal of the bonds
The sinking fund is an asset reported in the investment section of the balance sheet
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

66. Retiring Bonds
Early extinguishment of debt occurs when a firm’s long-term debt is retired before maturity
A gain or loss occurs when there is a difference between the reacquisition price and the carrying value of the debt
The gain or loss is reported as a component of income from continuing operations on the income statement
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

67. Leases

68. Definition of a Lease
A lease is a contractual agreement between the lessor (owner of the property) and the lessee (user of the property), giving the lessee the right to use the lessor’s property for a specific period in exchange for stipulated cash payments
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

69. Economic Advantages of Leasing
For the Lessee:
No (or low) down payment
Avoid risks associated with ownership
Technological obsolescence
Physical deterioration
Changing economic conditions
Flexibility
For the Lessor:
Increased sales
Ongoing business relationship with the lessee
Residual value retained
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

70. Lease Types
Capital leases are accounted for as if the lease agreement transfers ownership of the asset to the lessee
The lease is equivalent to a financed purchase
An asset and liability must be recorded on lessee’s books
Operating leases are accounted for as rental agreements, with no transfer of effective ownership associated with the lease
Lease payments are recorded as rent expense by the lessee and rent revenue to the lessor
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

71. Lease Classification Criteria
A lease is classified as a capital lease if any one of the following criteria are met:
The lease transfers ownership of the property to the lessee by the end of the lease term
The lease contains a bargain purchase option
The lease term is equal to 75% or more of the estimated economic life of the leased property
The present value of the minimum lease payments equals or exceeds 90% of the fair market value of the property
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

72. Accounting for Leases DATA
On January 1, 2006, Scully Corporation (lessee) enters into a lease with Porter Company (lessor) to lease a piece of equipment for five equal annual year-end installments of $13,870
Accounting treatments compared
operating lease
capital lease
For illustration purposes only
Classification is not elective
Terms of the lease dictate classification
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

73. Accounting for Operating Lease
Lessee
Nothing is recorded on January 1, 2006
Each December 31, record rent expense
No asset; no liability
Lessor
Continues to carry as an asset
Continues depreciation
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

74. Lessee Accounting for Capital Leases
Records the equipment as an asset and records an associated liability
The asset and liability are recorded at the present value of the lease payments using an appropriate rate of interest
Makes annual payments that are divided between interest and principal
Depreciates the asset over a 5-year period
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

75. Lessee Accounting for Capital Leases
The interest amount for each year is based on 12% of the balance of the liability at the beginning of the year
Annual depreciation is $10,000 ($50,000 ÷ 5 years)

76. Off-Balance-Sheet Financing

77. Off-balance Sheet Financing
Obligations of a company that are not disclosed on the financial statements are termed off-balance sheet financing
Three common types of off-balance sheet financing are
Operating leases
Unconsolidated subsidiaries
Joint ventures
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

78. Operating Leases
Operating leases agreements contain a promise to make future lease payments
This promise (obligation) is not reported on the balance sheet
Thus, off-balance-sheet financing of the asset used under an operating lease arrangement
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

79. Unconsolidated Subsidiaries
An unconsolidated subsidiary is a subsidiary that is accounted for using the equity method
Companies that purchase less than 50% of an investee do not have to prepare consolidated financial statements
The investee’s debt is kept off the balance sheet
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

80. Joint Ventures
Joint ventures occur when companies join forces to share the costs, risks, and benefits associated with specifically defined projects
A joint venture is carefully structured to ensure that the liabilities of the venture are not disclosed in the balance sheets of the companies
They are often just a special type of unconsolidated subsidiary
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

81. Debt-Related Ratios and the Impact of Operating Leases

82. Leverage Using debt to finance asset purchases is called leverage
The benefits of leverage:
Borrowing increases assets without any additional equity investment
More assets means more sales can be generated
More sales means income should increase
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

83. Debt-Related Financial Ratios
Leverage ratios indicate the extent of financing used to purchase assets.
Higher leverage increases return on equity
More borrowing
More assets
More sales
Increased Net Income
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

84. Debt-Related Financial Ratios
The debt ratio measures the amount of assets supplied by creditors
Rule of thumb: Most large U.S. companies borrow about half the funds they use to purchase assets
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

85. Leverage Ratios
The debt-to-equity ratio measures the number of dollars of borrowing for each dollar of equity investment
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

86. Leverage Ratios
Times interest earned is the ratio of the income available for interest payments to the annual interest expense
Financial Accounting, 7e Stice/Stice, 2006 © Thomson

87. In Summary ...
Liabilities are existing obligations for future economic sacrifice
Accounts payable and other short-term operating accruals are generally non-interest-bearing
Long-term liabilities are reported at the present value of future cash flows
Bonds are issued to borrow funds from multiple sources. Bonds can be issued at par, at a discount, or at a premium.
Leases are either rental in nature (operating) or in essence, purchases (capital). Four specific criteria exist for capital leases
Off-balance-sheet financing arises with operating leases, unconsolidated subsidiaries, and joint ventures
Debt-related financial ratios indicate the degree of leverage and the extent of a company to make period interest payments.