Debt Ratio Regression: January 2012


Variables used in the regression

  1. Debt Ratio = Debt/ (Market Value of Equity + Debt): If you can get market value of debt, use it. Else, use book value of debt.
  2. Insider Holdings = Shares held by insiders/ Primary number of shares outstanding. (Available on Yahoo! Finance)
  3. Expected growth rate in Revenues - (Available on Yahoo! Finance). If you cannot get an estimate, use your own estimate of growth.
  4. Fixed Assets / Total Assets =Book Value of Fixed Asets/ Book value of Total Assets
  5. EBITDA/ Enterprise Value = EBITDA/ (Market Value of Equity + Book value of Debt - Cash)

Regression set up

dbt regr 2

dbt reg 3

 

 

Assume that you want to estimate the market debt ratio for a firm with the following characteristics:

Expected growth rate in revenues = 10%

EBITDA/ Enterprise Value = 8%

Fixed Assets / Total Assets = 15%

Expected Debt Ratio= 0.257 + 0.139 *.08 + 0.038 *.15 -1.262 *.10 = .14762 or 14.762%

If your predicted value is less than zero, your predicted debt ratio is zero.