Debt Ratio Regression: January 2022
Variables used in the regression
Ratio = Debt/ (Market Value of Equity + Debt): If you can get market value
of debt, use it. Else, use book value of debt.
- Payout Ratio= Dividends/ Net Income, if Net Income is positve, not available if net income is negative.
- Expected growth rate in EPS- next 5 years= You can use expected or even historical earnings growth, if you don't have an EPS growth forecast
- Effective Tax Rate = Effective tax rate in most recent year
- How do I use this regression?
you want to estimate the market debt ratio for a firm with the following
characteristics, using the Global regression
EBITDA/EV = 0.15
Expected growth rate in EPS = 12%
Debt Ratio = 47.65 - 0.65 ( 12) -109.80 (.15) =23.38 or 23.38%
predicted value is less than zero, your predicted debt ratio is zero.